You can deduct mortgage interest on your federal tax return, but only if you itemize deductions instead of taking the standard deduction
Mortgage interest is deductible, meaning you can subtract it from your income before calculating what you owe in federal income tax. This lowers your taxable income, which can result in a smaller tax bill or a larger refund. However, you only get this benefit if you choose to itemize deductions on Schedule A of your Form 1040 — most taxpayers do not, because the standard deduction is larger.
The standard deduction for 2024 is $14,600 for single filers and $29,200 for married couples filing jointly. If your mortgage interest plus other deductions (property taxes, charitable donations, state and local taxes up to $10,000) add up to less than that, itemizing costs you money. If they add up to more, itemizing saves you money and increases your refund or lowers what you owe.
Key Takeaways
- Mortgage interest is deductible only if you itemize deductions on Schedule A, which most homeowners do not do because the standard deduction is larger.
- You can deduct interest on mortgages up to $750,000 of loan principal (or $1 million if the loan originated before December 16, 2017).
- Points paid to lower your interest rate are deductible, but only if you paid them out of pocket and meet other IRS rules about the loan.
- Mortgage interest paid to a bank or lender counts; interest paid to a seller who financed the home also counts.
- Your lender sends Form 1098 in January showing how much interest you paid that year, but you must report it correctly on your return.
When itemizing deductions actually saves you money
Itemizing makes sense only if your total deductions exceed the standard deduction. For 2024, that means your mortgage interest plus property taxes, state and local income taxes (capped at $10,000), charitable donations, and other deductible expenses must add up to more than $14,600 (single) or $29,200 (married filing jointly).
A homeowner in a high-tax state with a large mortgage might easily clear that threshold. Someone with a small mortgage in a low-tax state probably will not. Use the IRS worksheet or a tax software to compare both scenarios before you file — do not assume itemizing is better just because you own a home.
Loan limits and what interest counts
You can deduct interest on up to $750,000 of mortgage principal if the loan was taken out after December 16, 2017. If your mortgage originated before that date, the limit is $1 million. This applies to both first mortgages and home equity loans, combined.
Interest on a second mortgage, home equity line of credit (HELOC), or cash-out refinance counts toward the deduction as long as the total borrowed does not exceed the limit. Interest on a loan used to buy a second home or investment property also counts, as long as you meet the principal limit.
Mortgage insurance premiums (PMI) are not deductible. Property taxes are deductible but capped at $10,000 per year. Homeowners association fees are not deductible.
Points and prepaid interest
If you paid points (also called discount points) to lower your interest rate, you can deduct them — but only under specific conditions. Points paid out of pocket in the year you took out the loan are fully deductible that year. Points paid by the seller on your behalf are deductible, but spread over the life of the loan.
If you refinance, points on the new loan are deductible over the life of that new loan, not all at once. If you pay off the loan early (by selling the home or refinancing again), you can deduct any remaining points in the year you pay it off.
Prepaid interest — interest you pay in advance for a future period — is not deductible in the year you pay it. It becomes deductible in the year it applies.
How to report mortgage interest on your tax return
Your lender sends you Form 1098 (Mortgage Interest Statement) by January 31 each year. This form shows the total interest you paid in the previous year. You report this amount on Schedule A, line 8, if you are itemizing.
Check the Form 1098 against your own records. Lenders sometimes make errors, and you are responsible for reporting the correct amount. If the form shows $0 interest but you know you paid interest, contact your lender to ask for a corrected form.
If you paid interest to a seller who financed the home (rather than to a bank), the seller should give you a statement showing the interest. You can still deduct it on Schedule A even without Form 1098, but keep your own records in case the IRS asks.
Refinancing and how it affects your deduction
When you refinance, you start a new loan. Interest on the new loan is deductible the same way as the original loan — only if you itemize, and only up to the principal limit. Points on the refinance are deductible over the life of the new loan.
If you do a cash-out refinance (borrow more than you owe and take the difference in cash), the interest is deductible only on the amount used to buy, build, or improve your home. Interest on the cash-out portion may not be deductible, depending on how you use it.
What happens if you do not itemize
If you take the standard deduction instead of itemizing, you get no deduction for mortgage interest. Your mortgage interest does not disappear or carry forward — you simply do not get a tax benefit from it that year. This is why many homeowners, especially those with smaller mortgages or in lower-tax states, find that the standard deduction saves them more money overall.
You choose between itemizing and the standard deduction each year. You can itemize one year and take the standard deduction the next year, depending on which gives you a larger deduction.
Frequently Asked Questions
Does mortgage interest automatically give me a bigger refund?
Only if you itemize deductions and your total deductions exceed the standard deduction. If you take the standard deduction (which most people do), mortgage interest does not affect your refund. Run both scenarios through tax software or a worksheet to see which saves you more money.
My lender sent me Form 1098 but the interest amount looks wrong. What do I do?
Contact your lender and ask them to verify the amount. If they confirm an error, ask for a corrected Form 1098. Keep your own payment records to compare. Do not file your return until you have the correct figure — reporting the wrong amount can trigger an audit.
Can I deduct interest on a home equity loan or HELOC?
Yes, as long as the total of all mortgages and home equity loans does not exceed $750,000 (or $1 million for loans before December 16, 2017). The interest must be on a loan secured by your home, and you must itemize deductions to claim it.
What if I paid off my mortgage early or refinanced — can I still deduct the interest I paid?
You deduct interest only in the year you paid it. If you paid off the loan in June, you deduct only the interest paid through June on that year's return. If you refinanced, interest on the old loan stops being deductible after payoff, and interest on the new loan starts being deductible immediately.
Does the mortgage interest deduction apply to investment properties or rental homes?
Yes, interest on a mortgage for a rental property or investment home is deductible, but you report it on Schedule E (Rental Income and Loss) rather than Schedule A. The same principal limits apply.