Owning a home is expensive, but there is a tax break that can help you save money. It is called the home mortgage interest deduction, and it allows you to deduct the interest you pay on your mortgage from your taxable income. This can lower your tax bill and, in some cases, even bring what you owe to zero. However, not everyone qualifies for this deduction, and there are some rules you need to know before you claim it.
How does the home mortgage interest deduction work?
The mortgage interest deduction allows you to subtract the interest you pay on your home loan from your taxable income. This lowers the income on which the IRS taxes you, which can help reduce how much you owe.
There’s just one catch: You must itemize your deductions instead of claiming the standard deduction. So if you have more deductions, including mortgage interest, than the standard deduction, then it’s worth it to itemize.
The standard deduction for 2024 is:
- $14,600 for single filers
- $29,200 for married couples filing jointly
If your itemized deductions would not total more than these amounts, you’re better off claiming the standard deduction in any case.
Who qualifies for the mortgage interest deduction?
Not everyone qualifies for this tax break. To be eligible, you must:
- Have a mortgage on a home that is your primary or secondary residence.
- Be legally responsible for the loan (you must be the one making payments).
- Itemize deductions on your tax return.
There are also limits based on when you took out your loan:
- If your mortgage was taken out before December 15, 2017, you can deduct interest on up to $1 million in mortgage debt ($500,000 if married filing separately).
- If your mortgage was taken out after December 15, 2017, you can only deduct interest on up to $750,000 in mortgage debt ($375,000 if married filing separately).
What types of loans qualify for the deduction?
Several types of home loans qualify for the mortgage interest deduction, including:
- Primary and secondary home mortgages – The home must be used as collateral.
- Home equity loans and home equity lines of credit (HELOCs) – Interest is deductible only if the money is used to buy, build, or improve your home.
- Refinanced mortgages – You can deduct interest on the new loan, as long as it does not exceed the original loan amount unless the extra funds are used for home improvements.
- Mortgage points – If you paid points to lower your mortgage interest rate, you might be able to deduct these costs over the life of the loan.
How do you apply for the mortgage interest deduction?
To claim the deduction, you need to itemize your deductions on IRS Form 1040 Schedule A. Here is what you need to do:
- Get Form 1098 from your mortgage lender. This form shows how much interest you paid during the year.
- Add up all your itemized deductions, including mortgage interest, property taxes, and other eligible expenses.
- Fill out Schedule A and enter the total amount of your itemized deductions on your tax return.
Most tax software can walk you through the process, or you can work with a tax professional to ensure you are claiming the right amount.
What are the limitations of the mortgage interest deduction?
While the deduction is helpful, there are a few things you cannot deduct:
- Mortgage principal payments
- Down payments on your home
- Mortgage insurance premiums (unless Congress extends previous deductions)
- Interest on loans that were not used for home-related expenses
Knowing these rules can help you maximize your tax savings and avoid mistakes when filing your return.
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