Mortgage Interest Tax Deduction
Homeownership offers certain tax advantages that may reduce your taxable income, depending on your personal situation. One significant benefit is the mortgage interest tax deduction, which allows homeowners to deduct the interest portion of their mortgage payments.
A mortgage payment typically includes repayment of the loan principal, interest, and, in some cases, property taxes and insurance premiums (held in an escrow account and distributed when due). The mortgage interest tax deduction applies specifically to the interest you pay annually on your mortgage.
Since a substantial portion of your monthly mortgage payment often goes toward interest, this deduction can be highly beneficial when you itemize your deductions on your tax return.
Mortgage Interest Deduction Limits
The Internal Revenue Service (IRS) documents rules for mortgage interest tax deductions in Publication 936: Home Mortgage Interest Deduction. Please note, tax codes are subject to change, so it’s important to stay up to date on current tax codes. You may be able to deduct the entire interest portion of your mortgage payment if you itemize your deductions on Schedule A (Form 1040). Typically, the interest you pay must be on a loan secured by a home you own, but can include a first or second mortgage, a home improvement loan, a home equity loan, or a refinanced mortgage.
However, there are mortgage deduction limits homeowners should be aware of. If you took out a loan after December 15, 2017, the limit is interest paid up to $750,000 of debt ($375,000 for married couples filing separately). Loans taken out on or before December 15, 2017 the limit increases to $1 million ($500,000 for married couples filing separately).
Other limits may apply depending on your situation. For example, any loan proceeds that were not used to buy, build, or substantially improve your home are not eligible unless the loan was taken out before October 13, 1987. Also, loans that exceed the fair market value of the home are not eligible.
The Interest paid on a Home Equity Line Of Credit (HELOC) may be deductible.
For tax years 2018 through 2025, if home equity loans or lines of credit secured by your main home or second home are used to buy, build, or substantially improve the residence, interest you pay on the borrowed funds is classified as home acquisition debt and may be deductible, subject to certain dollar limitations. However, interest on the same debt used to pay personal living expenses, such as credit card debts, is not deductible.
For tax years before 2018 and after 2025, for home equity loans or lines of credit secured by your main home or second home, interest you pay on the borrowed funds may be deductible, subject to certain dollar limitations, regardless of how you use the loan proceeds. For example, if you use a home equity loan or a line of credit to pay personal living expenses, such as credit card debts, you may be able to deduct the interest paid.
See IRS Publication 936 for more details or consult a tax advisor for further information regarding the tax deductibility of interest. At Firefighters First Tax Services, we have tax professionals available who can help you determine if your mortgage interest is deductible, and whether you can deduct only a portion vs. the full amount.
Mortgage Interest Tax Form
When you are ready to file, first determine if you are planning to take the standard tax deduction or itemize. Note that taking the mortgage interest tax deduction only applies if you are itemizing your deductions. Most taxpayers use the option that gives them the lowest overall tax. Choose your deduction type, based on the IRS criteria. You may need to run numbers using both scenarios to determine which one results in the lowest overall tax liability.
Standard deduction 2024 (taxes due 2025)
The standard deduction for 2024 is $14,600 for single filers and married people filing separately, $21,900 for heads of household, and $29,200 for joint filers and surviving spouses.
| Filing status | 2024 standard deduction |
|---|---|
| Single; Married filing separately | $14,600 |
| Married filing jointly; Surviving spouse | $29,200 |
| Head of household | $21,900 |
| Source: Internal Revenue Service |
The standard deduction amount depends on the taxpayer's filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don't itemize deductions are entitled to a higher standard deduction. Most filers who use Form 1040 can find their standard deduction on the first page of the form.
Standard deduction for those 65 and older
People 65 and older and those who are blind are entitled to an extra standard deduction amount that they may add to their existing base standard deduction. How much extra depends on filing status and which situations apply.
Additional standard deduction 2024 (taxes due 2025)
| Single or head of household | |
|---|---|
| 65 and older or blind | + $1,950 |
| 65 and older and blind | + $3,900 |
| Married filing jointly or separately and surviving spouse | |
| 65 and older or blind | + $1,550 (per qualifying individual) |
| 65 and older and blind | + $3,100 (per qualifying individual) |
Itemized deduction, on the other hand, are individual expenses such as mortgage interest, that are considered deductible by the IRS. People who incur eligible expenses throughout the year may choose to itemize their return if it reduces their taxable income by more than the standard deduction. If using the itemization method, the taxpayer must file the following form: Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim include:
- State and local income or sales taxes
- Real estate and personal property taxes
- Home mortgage interest
- Personal casualty and theft losses from a federally declared disaster
- Gifts to a qualified charity
- Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income
Before you file, you should receive from your lending institution a Form 1098, which is used to report contributions and possible tax-deductible expenses to the IRS and taxpayers. Form 1098 Mortgage Interest Statement is used by lenders to report the amounts paid by a borrower if it exceeds $600 or more in interest, mortgage insurance premiums, or points throughout the tax year. If you paid more than $600 in mortgage interest during a particular year, your lender will send you a 1098 form stating the amount of interest you paid. This amount will need to be reported to the IRS.
Deducting Mortgage Interest After Refinancing
If you recently completed a refinance on your home, you can still deduct mortgage interest on the new loan. Depending on when the refinance closes, you might receive two 1098 forms for the tax year: one from your original lender for the period you held the initial mortgage, and another from your new lender for the mortgage interest paid after refinancing.
Other Tax Breaks for Homeowners
Aside from the mortgage interest tax deduction, there are other tax breaks available for homeowners. Tax deductions for homeowners (aside from mortgage interest) may include:
- Discount points
- Property taxes
- Home office expenses
- Medically necessary home improvements
Although these deductions may not be as significant as the mortgage interest tax deduction, all eligible deductions add up and may be worth claiming. It’s always best to consult a tax professional before you file, as every tax situation is different.
Need Help?
At Firefighters First Tax Services, we have tax professionals available who can help you determine if your mortgage interest is deductible, and what amount. Give us a call today 800-231-1626.
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