Mortgage interest can lower your federal tax only when you itemize and the interest comes from a qualified home loan within IRS limits.
People talk about the mortgage interest deduction like it’s a free perk of owning a home. It’s not. On a U.S. federal return, mortgage interest helps only if you itemize deductions on Schedule A. If you take the standard deduction, mortgage interest may still show up on Form 1098 from your lender, but it won’t change your tax bill.
That’s why the real question is two-part: does your loan interest qualify, and do your itemized deductions beat your standard deduction? Once you know those answers, the rest is clean math.
Is Mortgage Interest Tax Deductible? What Counts On a US Return
Mortgage interest is deductible when these points line up:
- You itemize. Mortgage interest is an itemized deduction, not a deduction you can take on top of the standard deduction.
- The loan is secured by a qualified home. That usually means your main home and, in many cases, one second home that has sleeping, cooking, and toilet facilities.
- The debt is qualified. Interest on acquisition debt (used to buy, build, or substantially improve the home that secures the loan) is the main bucket.
- Your deduction stays inside the loan limits. If your acquisition debt is above the limit, you may deduct only part of the interest.
Itemizing Is The Gate
Itemizing means you list deductions on Schedule A and total them up. You then take the larger of (1) your itemized deductions or (2) your standard deduction. If the standard deduction is larger, itemizing gives you no payoff, even if you paid a pile of mortgage interest.
Qualified Debt And The Loan Limits
The IRS rules set a cap on how much acquisition debt can be used to compute the mortgage interest deduction. For many loans taken out after mid-December 2017, the cap is $750,000 of acquisition debt ($375,000 if married filing separately). Older acquisition debt can fall under a $1,000,000 cap ($500,000 if married filing separately). The details and worksheets live in IRS Publication 936, which is the clearest single source for the deduction’s moving parts.
If your total acquisition debt is under the cap, your deductible interest is usually straightforward. If you’re above it, you’ll often deduct a share of the interest based on the qualified portion of the debt.
What Mortgage Interest Usually Qualifies
Most homeowners fall into one of these lanes. Read yours, then skim the rest so you know what to ignore.
Main Home Mortgage Interest
Interest on a mortgage secured by your main home is usually deductible when you itemize and the debt is acquisition debt. This is the classic “Form 1098” situation.
Second Home Mortgage Interest
Interest on a mortgage secured by one second home can also qualify under the same acquisition-debt rules. Things get messy when the second home is rented out. Rental use can change where the interest is claimed, since rental expenses are handled in a different part of the return. Publication 936 lays out the split rules for personal use and rental use.
Refinance Interest
A refinance doesn’t automatically erase deductibility. In many cases, interest on the portion of the new loan that pays off old acquisition debt stays in the acquisition-debt bucket. Cash-out refinances are where people stumble. The cash-out part counts only when the cash is used to buy, build, or substantially improve the same home that secures the loan. If you used the cash for other spending, the interest tied to that slice usually won’t qualify as deductible mortgage interest.
Home Equity Loans And HELOC Interest
Home equity interest runs on a use-of-funds rule. Interest is deductible only when the loan proceeds are used to buy, build, or substantially improve the home that secures the loan. The IRS states that rule directly in its FAQ on home equity loan and HELOC interest.
So a HELOC used for a bathroom remodel can fit, but a HELOC used to pay off a car loan usually won’t. If you used one line of credit for mixed spending, you may need to track draws so you can separate the deductible interest from the non-deductible interest.
Points And Other Closing Costs
Closing paperwork is full of numbers, and only some of them behave like mortgage interest.
Points Are Prepaid Interest
Points (also called discount points) are a form of prepaid interest. The timing of the deduction depends on why you paid them. Points on a home purchase can often be deducted in the year paid if IRS conditions are met. Points on a refinance are often deducted over the life of the loan. The IRS explains the core rule in Topic No. 504 (Home mortgage points).
Fees That Aren’t Interest
Appraisals, inspections, title insurance, recording fees, and many lender charges are not interest. They may matter for your cost basis, or they may be personal expenses, but they aren’t part of the mortgage interest deduction. When you’re unsure, compare your closing disclosure line item to the lists in Publication 936.
Mortgage Interest And Related Costs At A Glance
This table is designed for real-world sorting: what usually counts, what sometimes counts, and what to leave out. Your facts decide the final result, so treat the notes column as the decider.
| Item | Deductible When Itemizing? | What Decides It |
|---|---|---|
| Interest on main home acquisition debt | Yes | Debt is secured by the home and used to buy/build/improve; loan limit may cap it. |
| Interest on one second home acquisition debt | Yes | Same rules as the main home; heavy rental use can shift reporting. |
| Refinance interest (payoff portion) | Yes | New debt replaces older acquisition debt on the same secured home. |
| Cash-out refinance interest | Sometimes | Only the slice tied to qualified home improvement on the secured home can count. |
| HELOC or home equity loan interest | Sometimes | Proceeds must be used to buy/build/substantially improve the secured home; track mixed draws. |
| Points paid on a purchase | Sometimes | May be deductible in the year paid if IRS conditions are met. |
| Points paid on a refinance | Sometimes | Often spread over the loan term rather than deducted all at once. |
| Late fees that are stated as interest | Sometimes | If treated as interest by the lender, it may be part of mortgage interest. |
| Prepayment penalty interest | Yes | Often treated as interest; keep the lender statement that labels it. |
| Mortgage insurance premiums (PMI/FHA/VA) on 2025 returns | No | Publication 936 notes the itemized deduction for mortgage insurance premiums has expired for that year. |
| Homeowners insurance | No | Personal insurance is not mortgage interest. |
| Principal paid on the mortgage | No | Paying down principal is not a deduction. |
When Itemizing Pays Off
Mortgage interest is only one ingredient in itemizing. Your total itemized deductions must clear your standard deduction, or the deduction doesn’t land.
Start With A Fast Total
Add up the itemized buckets you actually have:
- Qualified mortgage interest
- State and local taxes up to the cap that applies to your return
- Charitable gifts you can document
- Eligible medical and dental expenses (only the part above the threshold counts)
If your total is far below your standard deduction, you’re done. Take the standard deduction and move on. If your total is close, run the return both ways.
Use The Current Standard Deduction For Your Filing Status
The standard deduction changes over time, so use the numbers for the year you’re filing. The IRS lists the 2025 amounts in its standard deduction table. Compare your itemized total to the line for your filing status.
One practical tip: the first year of a mortgage often has higher interest than later years, since amortization front-loads interest. That can make itemizing more likely early on, then less likely as interest drops.
Standard Deduction Benchmarks For 2025
This table shows the hurdle your itemized deductions must clear in tax year 2025. It also gives common patterns where mortgage interest moves the needle.
| Filing Status | 2025 Standard Deduction | Common Pattern That Leads To Itemizing |
|---|---|---|
| Single | $15,750 | Mortgage interest plus taxes and gifts exceed $15,750. |
| Married filing jointly | $31,500 | Larger interest year plus other deductions exceed $31,500. |
| Head of household | $23,625 | Interest and other deductions exceed $23,625. |
| Married filing separately | $15,750 | Itemizing choices can interact between spouses; run the numbers carefully. |
Records That Make The Deduction Defensible
You don’t need a filing cabinet full of paper, but you do need a clean trail for the items the IRS can’t see on a 1098.
Keep These Files Together
- Form 1098 from the lender for each loan
- Closing disclosure for the year you bought or refinanced
- Point documentation that shows the amount and purpose
- HELOC draw log with date, amount, and what it paid for
If you did a cash-out refinance or used a HELOC for home work, keep invoices and proof of payment with the draw log. That’s how you connect the interest to qualified home improvement use.
Where Mortgage Interest Lands On The Tax Forms
If you itemize, mortgage interest is reported on Schedule A under “Interest You Paid.” Form 1098 usually provides the figure for interest paid to the lender. If you paid interest that is not reported to you on a 1098, Schedule A has a spot for that as well, and Publication 936 explains the conditions for claiming it.
If your acquisition debt is above the IRS cap, Publication 936 worksheets help compute the deductible share. That worksheet step is what keeps the number tied to the rules, not guesswork.
Final Pass Before You File
- Confirm the loan is secured by a qualified home.
- Confirm the debt is acquisition debt, or a HELOC/home equity balance used for qualified home work.
- Check whether your total acquisition debt is under the IRS cap, and run the worksheet if it’s not.
- Add all itemized deductions and compare them to your standard deduction for your filing status.
- Save your 1098s, closing disclosure, and any draw logs that explain HELOC or cash-out use.
When those steps line up, mortgage interest isn’t a vague perk. It’s a deduction you can compute, document, and claim with a straight face.
References & Sources
- Internal Revenue Service (IRS).“Publication 936, Home Mortgage Interest Deduction.”Defines qualified homes, qualified debt, loan limits, and worksheets used when the deduction is capped.
- Internal Revenue Service (IRS).“Real estate FAQs: Home equity loan and HELOC interest.”States the use-of-funds rule for deducting home equity interest as mortgage interest.
- Internal Revenue Service (IRS).“Topic No. 504, Home mortgage points.”Explains points as prepaid interest and the general timing rules for deducting points.
- Internal Revenue Service (IRS).“Standard Deduction.”Lists the 2025 standard deduction amounts used to compare itemizing with taking the standard deduction.