The short answer: mortgage interest is deductible, but your mortgage payment itself is not
When you pay your mortgage each month, that payment splits into two parts: principal (the amount borrowed that you are paying back) and interest (the fee the lender charges for lending you the money). Only the interest portion can reduce your federal income taxes. The principal portion cannot.
This matters because in the early years of a mortgage, most of your payment goes toward interest. As years pass, more of each payment goes toward principal. So the tax deduction starts large and shrinks over time.
You can only claim this deduction if you itemize deductions on your tax return instead of taking the standard deduction. For most people, the standard deduction is larger, so they do not benefit from deducting mortgage interest even though they could.
Key Takeaways
- Mortgage interest is deductible on federal taxes, but only if you itemize deductions instead of taking the standard deduction.
- The principal portion of your payment—the actual loan amount you are repaying—is never deductible.
- Your lender sends you a Form 1098 each January showing how much interest you paid that year, which you use to claim the deduction.
- You can only deduct interest on mortgages up to $750,000 of the original loan amount (or $1 million if you took out the loan before December 16, 2017).
- State and local property taxes are also deductible if you itemize, but the combined deduction for property taxes, state income taxes, and sales taxes is capped at $10,000 per year.
How to know if itemizing saves you money
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 deductible expenses (property taxes, state income taxes, charitable donations) add up to less than the standard deduction, you will pay less tax by taking the standard deduction and not itemizing.
For example, if you are married and your mortgage interest is $8,000 and your property taxes are $5,000, your total deductible expenses are $13,000. Since that is less than $29,200, the standard deduction saves you more money. You would not itemize.
If your deductible expenses exceed the standard deduction, then itemizing makes sense. You would list your mortgage interest, property taxes, and other may have access to expenses on Schedule A of your tax return.
The Form 1098 and what it tells you
Your mortgage lender is required to send you a Form 1098 by January 31 each year. This form shows how much interest you paid on your mortgage during that tax year. Box 1 of the form lists the mortgage interest paid.
Keep this form with your tax records. If you itemize deductions, you will reference the amount in Box 1 when you fill out Schedule A. If you file electronically, you may be able to enter the information directly from the form.
The Form 1098 also shows property taxes paid (Box 2) and points paid on a mortgage (Box 2, line 4). Points are upfront fees you pay to lower your interest rate, and they can sometimes be deducted in the year you pay them, though the rules are complex.
The $750,000 loan limit and what it means
You can only deduct interest on mortgage debt up to $750,000 of the original loan amount. If you borrowed $800,000, you can deduct interest only on $750,000 of it. The interest on the remaining $50,000 is not deductible.
This limit applies to mortgages taken out after December 15, 2017. If you took out your mortgage before that date, the limit is $1 million instead.
The limit is per person, not per property. If you are married and file jointly, you and your spouse together can deduct interest on up to $750,000 of combined mortgage debt (or $1 million if both mortgages predate December 16, 2017).
When mortgage interest is not deductible
Interest on a home equity line of credit or home equity loan is deductible only if you used the borrowed money to build, buy, or substantially improve the home itself. If you borrowed against your home's equity to pay off credit cards or buy a car, that interest is not deductible.
Interest on a second mortgage or investment property mortgage follows the same rules as primary residence interest: it is deductible if you itemize and the total debt does not exceed the limits.
If you are self-employed and have a home office, you may be able to deduct a portion of your mortgage interest as a business expense, but this is a separate calculation and requires specific documentation.
How the deduction changes as your loan ages
Early in your mortgage, nearly all of your payment goes to interest. On a 30-year loan, your first payment might be 85 to 90 percent interest and only 10 to 15 percent principal. This means your deduction is largest in year one.
Each year, the ratio shifts. More of each payment goes toward principal, and less goes toward interest. By year 20 of a 30-year loan, you might be paying 40 percent interest and 60 percent principal. By year 29, the split might be 5 percent interest and 95 percent principal.
Your lender's amortization schedule shows this breakdown for every payment. You can request one from your lender or find it online if you have an account with them. This schedule helps you understand how much interest you will pay over the life of the loan.
State and local tax limits when you itemize
Many states allow you to deduct state income tax or state sales tax on your state return. You can also deduct property taxes on your federal return. However, the combined total of state income tax, state sales tax, and property taxes is capped at $10,000 per year on your federal return ($5,000 if you are married filing separately).
This cap does not explore to mortgage interest itself—only to state and local taxes. So if your property taxes are $8,000 and your state income tax is $5,000, you can only deduct $10,000 of the combined total on your federal return. The remaining $3,000 is lost.
This limit has made itemizing less beneficial for many homeowners, especially those in high-tax states. It is one reason to compare itemizing against the standard deduction before deciding which route to take.
Frequently Asked Questions
Do I have to itemize to deduct mortgage interest?
Yes. Mortgage interest is only deductible if you itemize deductions on Schedule A instead of taking the standard deduction. Most people find the standard deduction larger and do not itemize, so they do not benefit from the mortgage interest deduction even though they are allowed to claim it.
Can I deduct mortgage interest if I pay off my loan early?
You deduct only the interest you actually paid that year. If you pay off your mortgage in June, you deduct the interest paid from January through June. The remaining months' interest is never paid, so it cannot be deducted. Your Form 1098 will show only the interest paid through the payoff date.
What if I did not receive a Form 1098?
Contact your lender when ready. They are required to send it by January 31. If it is lost in the mail, ask them to send a duplicate or provide a written statement of the interest paid. You can deduct mortgage interest even without the form if you have other proof, such as your loan statements, but the Form 1098 is the standard document.
Can I deduct interest on a mortgage I took out to buy an investment property?
Yes, if you itemize. Interest on a rental property mortgage is deductible the same way as primary residence interest, subject to the same $750,000 limit. However, rental property expenses are typically deducted on Schedule E (rental income and expenses) rather than Schedule A.
Does refinancing change how much interest I can deduct?
Refinancing does not change the deduction itself—you still deduct the interest you actually pay that year. However, refinancing resets your loan term, which changes how much of each payment is interest versus principal going forward. A cash-out refinance may also trigger new limits depending on how you use the borrowed money.