You can reduce your taxable income with mortgage interest, but only if you itemize deductions

The mortgage interest deduction lets you subtract the interest you paid on your mortgage from your taxable income when you file taxes. This is not a refund — it is a deduction that lowers the amount of income the IRS taxes you on. Whether you actually benefit depends on whether itemizing deductions saves you more money than the standard deduction.

The deduction applies only to interest, not to principal payments. If you paid $8,000 in mortgage interest last year, you can deduct $8,000. The principal portion of your payment — the part that builds equity in your home — does not may have access to.

You receive this benefit only if you own the home and the mortgage is secured by the property itself. Investment properties, second homes, and home equity lines of credit have different rules. You must also file Form 1040 and Schedule A to claim it.

Key Takeaways

  • The mortgage interest deduction reduces your taxable income, but you only benefit if your total itemized deductions exceed the standard deduction for your filing status.
  • You can only deduct interest on mortgages up to $750,000 of the loan principal, a limit that has been in place since 2018.
  • Your mortgage lender sends you a Form 1098 each January showing how much interest you paid the previous year.
  • If you take the standard deduction instead of itemizing, you cannot claim the mortgage interest deduction, even if you paid substantial interest.

When the deduction actually saves you money

The deduction only matters if you itemize deductions on Schedule A. The IRS lets you choose between itemizing or taking the standard deduction — a flat amount based on your filing status. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly.

If your mortgage interest plus other deductible expenses (property taxes, charitable donations, state and local taxes up to $10,000) add up to more than the standard deduction, itemizing saves you money. If they do not, the standard deduction is better and the mortgage interest deduction does you no good.

Example: You paid $12,000 in mortgage interest and $4,000 in property taxes. Your total itemized deductions are $16,000. If you are married filing jointly, $16,000 exceeds the $29,200 standard deduction, so you would not itemize — you would take the standard deduction instead. Your mortgage interest deduction would have no effect on your taxes.

The $750,000 loan limit and what it means

You can only deduct interest on up to $750,000 of mortgage principal. This limit applies to mortgages taken out after December 15, 2017. If your mortgage is older, the limit is $1,000,000.

The limit is per person, not per property. If you are married and file jointly, you and your spouse share the $750,000 limit — it does not double. If you have two mortgages on the same home, the interest on both counts toward the limit.

Most homeowners never reach this limit. A $750,000 mortgage at 6.5% interest costs roughly $48,750 per year in interest alone. The limit matters mainly for high-value properties in expensive markets.

How to claim the deduction on your tax return

Your lender sends you a Form 1098 by January 31 each year. This form shows the total interest you paid during the previous tax year. Use this number on Schedule A, line 8.

You file Schedule A along with Form 1040. If you use tax software, it will ask whether you want to itemize or take the standard deduction. The software calculates both and recommends the option that saves you more money.

If you paid off your mortgage early or refinanced mid-year, your Form 1098 will show only the interest paid before the payoff or refinance date. If you did not receive a Form 1098, contact your lender — they are required to send it.

Points paid when you refinance or take out a new mortgage

Mortgage points (also called discount points) are upfront fees you pay to lower your interest rate. One point equals 1% of the loan amount. Points are deductible, but the rules depend on whether you paid them on a new purchase or a refinance.

On a new mortgage for a home purchase, you can deduct all points in the year you paid them. On a refinance, you must spread the deduction over the life of the loan — typically 15 or 30 years. If you refinance again or pay off the loan early, you can deduct the remaining points in that year.

Points appear on your Closing Disclosure form at closing. Your lender or tax preparer can tell you the exact amount and whether you can deduct them all at once or over time.

What happens if you pay off your mortgage early

If you pay off your mortgage before the loan term ends, you stop paying interest. Your deduction shrinks because you have less interest to deduct. This is not a penalty — it is straightforward the result of owing less money.

If you refinanced and have remaining points to deduct, you can deduct all of them in the year you paid off the loan. This sometimes creates a larger deduction in the payoff year than in previous years.

Frequently Asked Questions

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 you take the standard deduction, you cannot deduct mortgage interest, even if you paid substantial interest during the year.

Does the mortgage interest deduction count as a refund?

No. A deduction reduces your taxable income, which may lower the tax you owe or increase your refund. But the deduction itself is not a refund. Whether you receive a refund depends on how much tax was withheld from your paychecks during the year.

What if I paid mortgage interest but did not receive a Form 1098?

Contact your lender when ready. Lenders are required to send Form 1098 by January 31. If you paid interest and did not receive the form, the lender may have the wrong address on file. You can still deduct the interest if you can document it, but getting the form is simpler.

Can I deduct interest on a home equity line of credit?

Only if you used the borrowed money to buy, build, or improve the home. If you used a HELOC for other purposes — paying off credit cards, funding a business, or other expenses — the interest is not deductible.

Does the mortgage interest deduction explore to investment properties?

Yes, but you claim it on Schedule E (rental income and expenses) rather than Schedule A. The rules are otherwise similar, though investment property interest is deductible regardless of whether you itemize.