Is Your Mortgage Interest Tax Deductible?

Writing off your mortgage interest isn’t always the right move.

A couple looks over their mortgage interest tax deductions.
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 Eugenio Marongiu / Getty Images

Homeownership comes with some unique tax benefits. One of those is the mortgage interest deduction, which allows you to write off all or a portion of the interest you pay toward your mortgage loan. 

Want to make sure you take full advantage of this write-off? Here’s what you need to know.

What Is the Mortgage Interest Tax Deduction?

The mortgage interest tax deduction is a write-off specifically for homeowners who use a mortgage (bank loan) to buy their home. 

Taxpayers can deduct all the interest paid on their mortgage loan—as well as the costs of any mortgage points paid that year—from their annual tax returns. But the loan must meet specific requirements.

The loan must be:

  • Used to buy or build the home that the loan is for OR
  • Used to “substantially improve” the home, which the IRS defines as adding to your home’s value, prolonging your home’s life, or adapting the home for new uses

The loan’s balance must also fall:

  • Under $750,000, if originated after December 15, 2017 ($375,000 for a married taxpayer filing separate) OR
  • Under $1 million, if originated between October 13, 1987, and December 15, 2017 ($500,000 for married filing separate)

The deduction can be used on primary mortgages, home equity loans and lines of credit (HELOC), and second-home loans, as long as it meets the above qualifications. If you have two home-secured loans, the IRS considers the total of the mortgages, combined. To take the full deduction, the total for two home mortgages must be under $750,000, for example. 

As long as you paid at least $600 in interest, your lender will send you (by January 31) Form 1098 with the total interest you paid over the year.

A home isn’t just a house. The IRS defines “home” as a property with “sleeping, cooking, and toilet facilities,” which may describe your frequently used boat, mobile home, or RV.

How to Take the Mortgage Interest Deduction

To take advantage of the mortgage interest tax deduction, you must use a Schedule A form to itemize your taxes instead of taking the standard deduction

The Tax Cuts and Jobs Act of 2017 increased the standard deduction to $24,800 for a married couple, $12,200 for a single person, and $18,350 for heads of household. 

For the mortgage interest deduction to make sense, you’d want to ensure the interest—plus any other itemized deductions you take—adds up to more than your standard deduction, according to Sara Lavdas, chief financial officer at the Maryland & Delaware Group of Long & Foster Real Estate. “There are some situations in which it doesn’t make sense to itemize any longer,“ she told The Balance via email.

If you’re considering deducting your mortgage interest, Lavdas recommends pooling other write-offs like donations to charities, real estate taxes, excessive medical expenses, and others to see if they exceed your standard deduction amount. Keep in mind that there are limits for some of these write-offs—such as $10,000 in total for local and state property taxes.

Overall, fewer people itemize deductions due to the higher standard deduction, according to Lavdas. Still, it never hurts to ask your tax advisor. “Of all the deductions, mortgage interest is the most valuable in many cases, so it shouldn't be overlooked,” she said. 

To see if the mortgage interest deduction is beneficial in your scenario or if you have a more complicated situation (such as a home office) that could impact whether your home is considered “qualified,” consider speaking to an accountant or financial advisor.

When Is Your Mortgage Interest Not Deductible?

You can’t deduct interest if the loan was used to finance a full-time rental property. To qualify for the deduction, you must use the home more than 14 days out of the year or 10% of the number of days it’s rented out—whichever is more.

Fortunately, if you don’t meet this requirement, there may be another option. “If you own a rental property with a mortgage and are taking in rental income, you have the option of deducting that mortgage interest on Schedule E—where you itemize business deductions,” Lavdas said.

Additionally, you can’t deduct interest on any part of the loan not used towards your home. If you used money from a cash-out refinance to pay for medical bills, a trip, or your child’s college tuition, you couldn’t write off the interest paid on that part of the mortgage.

Here’s an example: Suppose you owe $100,000 on your mortgage. You take out a cash-out refinance mortgage loan for $200,000. You receive $100,000 in cash. You use $50,000 of that cash to improve your home, and put another $50,000 toward credit card debt. 

In this scenario, you can only deduct interest paid on $150,000—$100,000 for the existing mortgage which secured the house, plus the $50,000 used to improve your home. The interest paid on the $50,000 for credit card debt is not deductible. 

Key Takeaways

  • The mortgage interest tax deduction allows you to write off all the interest paid on your mortgage loan for that year. 
  • Loans must meet certain balance requirements and be used to buy, build, or improve the home to qualify.
  • You need to itemize using Schedule A form to take the tax deduction.
  • Because of recent increases to the standard deduction, taking the mortgage interest tax deduction isn’t always worth it financially.

Article Sources

  1. Internal Revenue Service. "Publication 936 (2019), Home Mortgage Interest Deduction." Accessed Sept. 25, 2020. 

  2. Internal Revenue Service. "Publication 936 (2019), Home Mortgage Interest Deduction." Accessed Sept. 25, 2020. 

  3. Internal Revenue Service. "Publication 501 (2019), Dependents, Standard Deduction, and Filing Information." Accessed Sept. 25, 2020. 

  4. Internal Revenue Service. "Topic No. 503 Deductible Taxes." Accessed Sept. 25, 2020.