Buying a home comes with a long list of financial responsibilities—but it also comes with valuable tax benefits. One of the most widely known is the mortgage interest deduction, which can reduce your taxable income and help you keep more of what you earn.
But how does it actually work? Who qualifies? And how much can you deduct?
In this article, we’ll break down everything you need to know about the mortgage interest deduction—how it’s calculated, how to claim it, and what changes have affected it in recent years—so you can make the most of your tax benefits as a homeowner.
What Is the Mortgage Interest Deduction?
The mortgage interest deduction is a tax incentive that allows homeowners to deduct the interest paid on a qualified home loan from their taxable income. This means you can lower the amount of income the IRS considers taxable, which can lead to a smaller tax bill—or a larger refund.
To qualify, your mortgage must be secured by a primary or secondary residence, and you must itemize your deductions on your tax return instead of taking the standard deduction.
This deduction can apply to:
- Loans used to buy, build, or substantially improve your home
- First mortgages
- Second mortgages
- Home equity loans and home equity lines of credit (HELOCs), if used for qualifying purposes
How Much Mortgage Interest Can You Deduct?
As of 2025, the IRS allows you to deduct interest on up to $750,000 of mortgage debt if you are filing as an individual or jointly as a married couple. This limit was set by the Tax Cuts and Jobs Act (TCJA) of 2017 and applies to mortgages originated after December 15, 2017.
If your mortgage was originated before that date, you may still qualify for the previous limit of $1 million in mortgage debt.
Here’s a quick overview:
- Mortgages after Dec. 15, 2017: Interest on up to $750,000 is deductible
- Mortgages before Dec. 15, 2017: Interest on up to $1 million is deductible (grandfathered in)
- Married filing separately: Each spouse can deduct interest on up to $375,000 of qualified debt (or $500,000 under the old rule)
These limits apply to the combined total of all mortgages used to buy, build, or improve your main home and second home.
Qualifying Loans for the Deduction
To claim the mortgage interest deduction, the loan must meet certain requirements:
1. The Loan Must Be Secured by the Property
Your mortgage must be a secured debt, meaning your home serves as collateral for the loan. If you default, the lender has the right to foreclose. Personal loans or unsecured lines of credit used to buy a home don’t qualify.
2. The Funds Must Be Used for a Qualified Purpose
Interest is deductible only if the loan proceeds were used to:
- Buy a home
- Build a home
- Substantially improve your home
If you use a mortgage or home equity loan for personal expenses like paying off credit card debt or financing a vacation, the interest is not deductible.
3. The Property Must Be a Qualified Residence
You can deduct interest on up to two homes:
- Your primary residence
- One secondary residence (such as a vacation home)
Rental properties follow different tax rules and may qualify for business-related deductions instead.
How to Claim the Mortgage Interest Deduction
To deduct mortgage interest, you must itemize your deductions using Schedule A of IRS Form 1040. This means you’re opting out of the standard deduction and listing your deductible expenses line-by-line.
Step 1: Determine Whether Itemizing Is Worth It
The standard deduction for 2025 is:
- $14,000 for single filers
- $28,000 for married couples filing jointly
To benefit from itemizing, your total deductions—including mortgage interest, property taxes, charitable contributions, and medical expenses—must exceed the standard deduction for your filing status.
For many homeowners, especially those early in their mortgage when interest payments are highest, itemizing can lead to bigger tax savings.
Step 2: Use Form 1098
Every year, your mortgage lender will send you IRS Form 1098, also known as the Mortgage Interest Statement. This document lists the total interest you paid during the tax year.
You'll use the figure from Box 1 on Form 1098 when completing your Schedule A.
Step 3: Fill Out Schedule A
On Schedule A:
- Enter your mortgage interest from Form 1098 in Line 8a
- Enter other deductions (property taxes, charitable contributions, etc.)
- Total your itemized deductions and compare to the standard deduction
If your itemized total is higher, you'll benefit from taking those deductions—including mortgage interest—on your return.
What About Points and PMI?
In addition to mortgage interest, you may also be able to deduct:
Mortgage Points
If you paid discount points to lower your mortgage rate when you purchased or refinanced your home, you may be able to deduct those points as prepaid interest. The deduction rules vary depending on:
- Whether you purchased or refinanced
- How the points were paid
- The purpose of the loan (primary residence vs. investment)
Generally, points paid on a purchase loan for a primary home are fully deductible in the year they were paid. For refinances, points are typically deducted over the life of the loan.
Mortgage Insurance Premiums (PMI)
As of early 2025, the deduction for private mortgage insurance (PMI) premiums expired and has not been renewed by Congress. This deduction was previously allowed for qualified taxpayers with adjusted gross income below a certain threshold.
If the law changes, PMI may become deductible again. Always check current IRS guidance or consult a tax professional.
Can You Deduct Interest on a Refinance?
Yes, but with caveats. If you refinance your mortgage, the interest on the new loan is deductible only up to the original loan amount—as long as you use the proceeds to pay off the original mortgage.
If you take out cash during the refinance and use it for something other than home improvements, the interest on the cash-out portion may not be deductible.
For example:
- You refinance a $300,000 loan into a new $350,000 mortgage.
- You use $300,000 to pay off your old loan and $50,000 for home renovations.
- Interest on the full $350,000 may be deductible.
But if you used that $50,000 to pay off credit cards, only interest on the original $300,000 would qualify.
Can You Deduct Interest on a HELOC?
It depends on how you use the funds.
As of the Tax Cuts and Jobs Act, interest on a home equity line of credit (HELOC) is only deductible if the money is used to:
- Buy a home
- Build a home
- Substantially improve the home securing the loan
Using HELOC funds for personal expenses—like tuition, travel, or debt consolidation—does not qualify for the deduction.
What Records Should You Keep?
To support your deduction and prepare for potential audits, keep the following documents for at least seven years:
- Form 1098 from your lender
- Closing Disclosure showing points paid
- Loan agreements or HELOC documentation
- Receipts for home improvement expenses (if applicable)
- Year-end mortgage statements
Detailed records make tax filing easier and ensure you can back up your claims if questioned by the IRS.
How the Mortgage Interest Deduction Affects Your Taxes
The mortgage interest deduction doesn’t give you a dollar-for-dollar reduction in taxes. Instead, it reduces your taxable income, which in turn lowers your total tax liability.
For example, if you’re in the 24% tax bracket and you claim $10,000 in mortgage interest, you could reduce your taxes owed by $2,400.
This deduction is most valuable for:
- New homeowners (early in the loan term when interest payments are highest)
- High-income earners who itemize
- Homeowners with large mortgages
As your loan matures and your payments shift more toward principal than interest, the value of this deduction decreases over time.
Should You Refinance to Maximize the Deduction?
While tax savings can be a nice perk, refinancing should always be based on broader financial factors—like lowering your rate, reducing your term, or tapping equity for smart investments.
However, if you’re considering refinancing for home improvements, the interest on the new loan can still qualify for the deduction—assuming it meets IRS guidelines.
At CapCenter, our refinance experts can help you understand both the savings and tax implications of your options, with Zero Closing Costs that help you save even more.
How CapCenter Helps You Prepare
At CapCenter, we believe homeowners should feel empowered—not overwhelmed—by the financial aspects of owning a home. We walk you through not only the mortgage process, but also the long-term implications of your choices, including how interest, taxes, and insurance impact your budget.
Here’s how we help:
- Clear loan disclosures that show how much interest you’ll pay over time
- Transparent guidance with no lender fees or hidden charges
- Support for tax documentation, including explaining Form 1098 and interest breakdowns
- Refinance planning that takes tax and equity goals into account
With CapCenter, you’re not just getting a loan—you’re getting a trusted partner for smart, sustainable homeownership.
Frequently Asked Questions
Is the mortgage interest deduction still available in 2025?
Yes, but only if you itemize your deductions. The deduction applies to interest paid on up to $750,000 in qualified mortgage debt for loans originated after Dec. 15, 2017.
Can I deduct mortgage interest if I take the standard deduction?
No. You must itemize your deductions on Schedule A to claim the mortgage interest deduction.
How do I know how much interest I paid?
Your lender will send you Form 1098 each January. It shows the total mortgage interest you paid during the previous tax year.
Can I deduct interest on an investment property?
No, not through Schedule A. However, mortgage interest on rental or investment properties may be deductible as a business expense on Schedule E.
Does CapCenter provide tax advice?
While we’re not tax advisors, our team can help you understand how mortgage interest is calculated and reported. For personalized tax advice, we recommend consulting a certified tax professional.
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