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Mortgage interest deduction
This tax deduction helps homeowners lower their tax bill — but only if you itemize.
Have you paid mortgage interest this year? You could save thousands on your tax bill by taking the mortgage interest deduction. Here’s everything you need to know.
What's in this guide?
- What is the mortgage interest deduction?
- How much is the mortgage interest deduction worth in 2020?
- Who qualifies for the mortgage interest deduction?
- How to claim the mortgage interest deduction
- What to watch out for
- Compare tax filing services
- Related tax credits or deductions
- Bottom line
- Frequently asked questions
What is the mortgage interest deduction?
The mortgage interest deduction lets homeowners write off interest on the first $1 million of their mortgage debt if their loan originated before December 15, 2017 or $750,000 if it originated after.
The mortgage interest deduction reduces your taxable income dollar for dollar. For example, if you had $50,000 in taxable income and paid $5,000 in mortgage interest, your taxable income would drop to $45,000 if you claim the deduction.
How much is the mortgage interest deduction worth in 2020?
The amount you can claim depends on the year you took out your mortgage. You can deduct 100% of your interest payments as long as your total mortgage debt falls under these limits:
|Date you took out mortgage||Single, married filing jointly, head of household||Married filing separately|
|Before October 13, 1987||No limit||No limit|
|October 14, 1987 to December 15, 2017||Up to $1 million||Up to $500,000|
|December 16, 2017 to present||Up to $750,000||Up to $375,000|
The mortgage interest deduction has the following limitations:
- Only two homes qualify for the deduction. If you have more than two homes, you must choose which one you’re listing as your secondary property for the year.
- Limits apply to total debt. The deduction limits apply to the total debt on your first and second home, not each individual property.
- There’s an exception to the limit. If you entered into a written, binding contract with a mortgage lender before December 15, 2017 that stated you’d close by January 1, 2018 and purchase by April 1, 2018, your mortgage falls under the old deduction limits of $1 million or $500,000 if married and filing separately.
- Can’t claim the standard deduction. Federal law states that you must itemize your taxes to claim the mortgage interest deduction, which means you can’t take the standard deduction.
Who qualifies for the mortgage interest deduction?
Nearly everyone with a mortgage qualifies for this deduction. But your deduction amount depends on when you took out your mortgage.
If you took out your mortgage after October 14, 1987, you can write off interest on the first $750,000 or $1 million of your secured loan as long as it’s used to buy, build or sustainably improve your primary or secondary home.
If you took out your mortgage before October 14, 1987, you can deduct 100% of your interest no matter how much your property is worth.
You can also claim the mortgage interest deduction if you:
- Receive the ministers’ and military housing allowance.
- Are part of the Hardest Hit Fund and Emergency Homeowners’ Loan programs.
- Qualify for mortgage assistance payments.
- Have a home that was destroyed by a fire, storm, hurricane or earthquake and plan to rebuild it or sell the land.
What qualifies for the deduction?
Certain rules apply, but the following items may qualify as mortgage interest:
What qualifies for the mortgage interest deduction?
|Home equity line of credit|
|Interest accrued before selling a home|
|Late payment charges|
|Mortgage insurance premiums|
|Mortgage interest credit|
|Mortgage prepayment penalties|
|Mortgage on first home|
|Mortgage on second home|
|Mortgage on third or fourth home|
How to claim the mortgage interest deduction
Your mortgage company will send you Form 1098 as long as you paid at least $600 in interest. This form lists the amount of deductible interest you can claim.
When you file your tax return, you’ll use Form 1040, Schedule A to claim mortgage interest and other itemized deductions.
What to watch out for
If you’re claiming the mortgage interest deduction, you’ll want to watch out for a few things:
- Must have lived in rented home. To qualify, you need to live in your second home for at least 14 days or an amount equal to 10% of the days it was rented out — whichever is longer. For example, if your home was rented out for 200 days, you must have lived there for at least 20 days to claim the deduction.
- Claiming the credit may not be worth it. You’ll save more money if the total of your itemized deductions is lower than your standard deduction limit. If it’s lower, you shouldn’t claim the mortgage interest deduction.
Compare tax filing services
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Related tax credits or deductions
If you qualify for the mortgage interest deduction, you may also qualify for the following deductions:
- Property tax deduction. If you’ve paid property taxes this year, you can deduct up to $10,000 or $5,000 if you’re married and filing separately.
- Points deduction. If you bought a home this year, you could deduct discount and origination fee points from your tax bill.
Writing off mortgage interest is a huge perk for homeowners. It reduces the amount of taxes you owe dollar for dollar, and almost everyone qualifies for it. But it may only make sense to claim it if your itemized deduction is higher than your standard deduction limit.
Before you file taxes, consider hiring a professional or using an online service that can help you decide if claiming the mortgage interest deduction makes financial sense for you.
Frequently asked questions
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