The mortgage interest deduction reduces your taxable income, not your refund directly
The amount you can deduct for mortgage interest depends on how much interest you paid during the tax year, but the deduction itself does not equal your refund. Instead, the deduction lowers your taxable income, which then lowers the tax you owe. Whether that results in a refund depends on how much tax was already withheld from your paychecks or paid through estimated tax payments.
For example, if you paid $8,000 in mortgage interest and you are in the 22% tax bracket, the deduction reduces your taxable income by $8,000. That saves you roughly $1,760 in federal tax. If your employer withheld $3,000 in federal tax throughout the year and you owe $1,240 after the deduction, you would receive a refund of $1,760. If you withheld $500, you would owe $740 instead.
Your mortgage lender sends you a Form 1098 by January 31 each year showing how much interest you paid. That figure goes on Schedule A if you itemize deductions. You can only claim the deduction if you itemize rather than take the standard deduction, and only if your total itemized deductions exceed the standard deduction for your filing status.
Key Takeaways
- Mortgage interest reduces your taxable income, not your refund amount directly — the refund depends on what was already withheld from your pay.
- Your lender reports the interest you paid on Form 1098, which you use to claim the deduction on Schedule A.
- You can only deduct mortgage interest if you itemize deductions, and only if your itemized deductions exceed the standard deduction for your filing status.
- The deduction applies only to interest on loans up to $750,000 of the home's purchase price, with some exceptions for loans taken before December 16, 2017.
- State and local property taxes, not mortgage interest, are subject to the $10,000 cap on deductions.
Limits on how much mortgage interest you can deduct
Not all mortgage interest qualifies. The deduction applies only to interest on loans used to buy, build, or improve your home, and only on the first $750,000 of the loan principal. If you took out the mortgage before December 16, 2017, the limit is $1,000,000.
Interest on home equity lines of credit (HELOCs) and second mortgages counts toward the limit as long as the borrowed money was used to buy, build, or improve the home. Interest on a HELOC used to pay off credit cards or fund a vacation does not may have access to.
Points paid to lower your interest rate can sometimes be deducted in the year you pay them, but only if you meet specific conditions — mainly that the loan is secured by your primary residence and the points are a standard charge in your area. If you refinance, you usually have to deduct the points over the life of the new loan instead of all at once. Your lender will tell you on the closing statement whether the points are deductible in year one.
When itemizing makes the deduction worth claiming
You can only use the mortgage interest deduction if you itemize deductions on Schedule A. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly. If your mortgage interest plus other itemized deductions (state and local taxes, charitable donations, medical expenses above 7.5% of income) do not exceed those amounts, you are better off taking the standard deduction and skipping the mortgage interest deduction.
Many homeowners with mortgages do not itemize because the standard deduction is higher. The Tax Cuts and Jobs Act of 2017 roughly doubled the standard deduction, which pushed millions of filers below the itemization threshold. If you paid $6,000 in mortgage interest and $4,000 in state and local property taxes, your total itemized deductions are $10,000 — less than the $14,600 standard deduction for a single filer, so you would not benefit from itemizing.
If you are close to the threshold, bundling deductions in certain years can help. Some filers pay their January property tax bill in December of the prior year to push their deductions over the limit in one year, then take the standard deduction the next year. A tax professional can model this for your specific situation.
How to report mortgage interest on your tax return
Your lender mails Form 1098 by January 31, showing the interest you paid in the prior year. The form lists the total interest in Box 1. You enter that amount on Schedule A, line 8, under "Home mortgage interest and points reported to you on Form 1098."
If you paid interest to a lender who did not send a 1098 — sometimes the case with private loans or if the interest was under $600 — you can still deduct it, but you must have documentation. Keep your mortgage statements or a letter from the lender showing the interest paid.
After you complete Schedule A with all your itemized deductions, you transfer the total to Form 1040. That reduces your taxable income. The IRS then calculates your tax based on the lower income, which determines whether you owe money or receive a refund.
The difference between mortgage interest and property taxes
Mortgage interest and property taxes are separate deductions, but they are often confused. Mortgage interest is what you pay to borrow the money. Property taxes are what you pay to your county or municipality to own the land. Both can be deducted on Schedule A, but property taxes are subject to a $10,000 annual cap. Mortgage interest has no cap.
Your Form 1098 shows only the interest. Your property tax bill or a statement from your county assessor shows the taxes. Some homeowners pay both through an escrow account managed by their lender, so the lender deducts both from the monthly payment, but they are reported separately on your tax return.
What happens if you refinance during the year
If you refinanced your mortgage, you may have paid interest to two different lenders in the same tax year. Each lender sends a separate Form 1098 showing the interest paid to them. You add both amounts together on Schedule A.
Points paid at closing on a refinance are usually deducted over the life of the new loan, not all at once. If the new loan is for $300,000 and you paid $3,000 in points, you deduct $100 per year for 30 years (or the actual loan term). Your lender will note on the closing statement whether the points must be amortized or can be deducted immediately.
If you paid off the old loan early, any remaining unamortized points from the original purchase can sometimes be deducted in the year of payoff. Your tax professional can determine whether this applies to your situation.
Frequently Asked Questions
Does mortgage interest automatically give me a refund?
No. The deduction lowers your taxable income, which lowers your tax bill. Whether you receive a refund depends on how much tax was withheld from your paychecks throughout the year. If you withheld more than you owe, you get a refund. If you withheld less, you owe money.
Can I deduct mortgage interest if I take the standard deduction?
No. You can only claim the mortgage interest deduction if you itemize deductions on Schedule A. If your itemized deductions do not exceed the standard deduction for your filing status, you cannot use the mortgage interest deduction.
What if I did not receive a Form 1098 from my lender?
Contact your lender and ask for a corrected form or a written statement of the interest paid. If the interest was under $600, the lender may not be required to send a 1098, but you can still deduct it if you have documentation. Keep your mortgage statements as proof.
Can I deduct interest on a second mortgage or home equity line of credit?
Yes, if the borrowed money was used to buy, build, or improve your home. Interest on a HELOC used for other purposes does not may have access to. The total deduction for all mortgages and home equity loans is limited to interest on $750,000 of principal (or $1,000,000 if the loan originated before December 16, 2017).
How do I know if I should itemize or take the standard deduction?
Add up your mortgage interest, property taxes (capped at $10,000), charitable donations, and other deductible expenses. If the total exceeds the standard deduction for your filing status ($14,600 for single, $29,200 for married filing jointly in 2024), itemize. Otherwise, take the standard deduction.