Mortgage Interest Deduction: What It Is and How It Works in 2026

The mortgage interest deduction is a federal tax break that lets homeowners who itemize their deductions take the interest they paid on a qualifying home loan off of their taxable income. This lowers the amount of income tax they owe.

Author: Casey Foster

Published on: 3/16/2026|14 min read

Fact Checked

Author: Casey Foster|Published on: 3/16/2026|14 min read

Fact Checked

Key Takeaways

When you file your federal taxes, you can deduct the interest you paid on a qualifying mortgage from your taxable income.
If you took out your loan after December 15, 2017, you can deduct interest on up to $750,000 of mortgage debt. If you took out your loan before that date, you can deduct interest on up to $1 million of mortgage debt.
To get this benefit, you have to list your deductions on Schedule A of Form 1040. This means that the standard deduction won't work.
You may also be able to deduct mortgage interest on mortgage points, some late fees, and penalties for paying off your loan early.
For the 2025 tax year, the standard deduction is $15,750 for single filers and $31,500 for married couples filing jointly. This means that you should only itemize if your total deductions are more than those amounts.
Every year, your lender sends you IRS Form 1098, which shows you exactly how much mortgage interest you paid during the tax year.
You can only deduct the interest on home equity loans and lines of credit if you used the money you borrowed to buy, build, or make major improvements to your home.
We at AmeriSave are not tax experts; everyone’s situation is different. For a deeper understanding of this topic, please talk to a tax professional.

What Is the Mortgage Interest Deduction?

One of the oldest tax breaks for American homeowners is the mortgage interest deduction. It works by letting you take the interest you pay on a qualifying home loan off of your taxable income. That sounds pretty simple, but there are parts of it that surprise people every year when they file their taxes.

This is the main idea. When you pay your mortgage each month, some of the money goes toward the loan's principal balance and some goes toward interest. You can deduct the interest part from your income when you file your federal tax return, but only if you list your deductions instead of taking the standard deduction. This doesn't mean that your tax bill will go down by a dollar for every dollar you owe. It's a lower amount of money that the IRS uses to figure out how much you owe.

Why should this matter to you? Because for a lot of homeowners, the interest on their mortgage is the biggest expense they can write off. Most of your monthly payment goes toward interest rather than principal in the first few years of a 30-year loan. If you have a $400,000 mortgage at 6.75%, you'd pay about $26,800 in interest in the first year alone. If you pay 22% in federal taxes, you could save about $5,896 on your tax bill by taking that interest off. That's a lot of money.

The Sixteenth Amendment made the federal income tax law in 1913, and this deduction has been part of the law ever since. At that time, Congress let people deduct interest on all of their personal loans, not just their mortgages. Most Americans bought their homes with cash, and only 1% of the population made enough money to pay income taxes. The mortgage interest deduction didn't become the big tax break we know today until after World War II, when the FHA started insuring 30-year loans and homeownership rates went through the roof. The Tax Reform Act of 1986 got rid of most other personal interest deductions, like those for credit cards and auto loans. However, it kept the mortgage version. It has survived every major change to the tax code since.

How the Mortgage Interest Deduction Works

Claiming this deduction comes down to a few moving parts, and it helps to walk through each one so you know what you're dealing with.

First, you need a mortgage on a qualified home. According to the IRS, a qualified home can be your main residence or one second home. It has to have sleeping, cooking, and bathroom facilities. So yes, a condo, a mobile home, and even a houseboat can count.

Second, you have to itemize your deductions on Schedule A of your federal tax return. You can take the standard deduction or you can itemize, but not both. For the 2025 tax year, the standard deduction is $15,750 for single filers and $31,500 for married couples filing jointly, according to the Internal Revenue Service. Itemizing only benefits you if your total deductible expenses exceed those amounts.

Third, there are loan limits. If you took out your mortgage after December 15, 2017, you can deduct interest on the first $750,000 of debt ($375,000 if married filing separately). Loans that originated before that date still fall under the older limit of $1 million ($500,000 if married filing separately). That cutoff date comes from the Tax Cuts and Jobs Act, which lowered the cap as part of a broader overhaul of individual tax rules.

And here's something people forget. These limits apply to the combined balance of all your qualifying mortgages. So if you have a primary mortgage and a home equity loan, those balances add together when determining whether you're over the cap.

What Counts as Deductible Mortgage Interest

The interest on your regular monthly payment is the obvious one. But several other costs can qualify under this deduction, and they're easy to overlook.

Mortgage Points

When you close on a home loan, you might pay discount points to lower your interest rate. One point typically costs 1% of the loan amount. Because points are a form of prepaid interest, the IRS generally lets you deduct them. If you paid the points directly at closing for a purchase loan that meets certain conditions, you can usually deduct the full amount in the year you paid them. So if you bought two points on a $350,000 loan, that's $7,000 you could potentially deduct in year one. For a refinance, you'll typically need to spread the deduction evenly across the life of the loan, which means deducting a fraction of the cost each year. AmeriSave can help you weigh whether buying points makes financial sense for your situation.

Late Payment Charges and Prepayment Penalties

This one surprises people. If your lender charges a late fee because your payment was overdue, that charge can qualify as mortgage interest for tax purposes. The catch is that the fee has to be a charge for the late use of money, not a fee for a specific service your lender performed. Similarly, if your lender imposes a prepayment penalty because you paid off your mortgage ahead of schedule, that amount can also be deducted as mortgage interest. Not every lender charges prepayment penalties, but if yours does, at least that cost comes with a small tax upside.

Interest Paid Before Selling Your Home

If you sell your home midway through the year, you can still deduct the interest you paid on the mortgage up until the date you closed the sale. Your settlement statement will show exactly how much interest was paid through the sale date.

What Doesn't Qualify

Just as important as knowing what counts is knowing what doesn't. Homeowners insurance premiums aren't deductible under this provision. Private mortgage insurance (PMI) premiums, VA funding fees, and USDA guarantee fees also don't currently qualify as deductible mortgage interest for the 2025 tax year.

Closing costs like title fees, appraisal fees, recording charges, and home inspection costs are excluded too. Moving expenses aren't deductible either, unless you're an active-duty service member relocating under military orders. Interest on a reverse mortgage isn't deductible while the loan is outstanding because you aren't actually making interest payments during that time. You can only deduct reverse mortgage interest after the loan is repaid. And your down payment, earnest money, and any deposits you made during the home buying process? Those aren't interest, so they don't count either.

Which Loans Qualify for the Deduction

Most standard home loans qualify, but the rules get more specific depending on the type of property and loan you have.

Primary Residence Mortgages

Any mortgage secured by your main home generally qualifies, as long as the property has basic living amenities. It doesn't matter whether it's a single-family house, a condo, a co-op, or a manufactured home. Even a timeshare arrangement can qualify if it meets the IRS requirements for a qualified home. The key requirement is that the home serves as collateral for the loan. If you own a co-op, you can deduct your share of the corporation's mortgage interest, which is a detail many co-op owners don't realize. AmeriSave offers several loan options for primary residence purchases, including conventional, FHA, and VA loans.

Second Home Mortgages

You can deduct interest on a mortgage for one second home, but there's a rental wrinkle. If you rent out that second home, you have to live in it for at least 14 days during the year or 10% of the total days it's rented, whichever is longer. Fall short of that personal-use test, and the IRS treats it as a rental property instead. You can only designate one second home at a time for this deduction, though you can switch which home qualifies each tax year.

Home Equity Loans and Lines of Credit

This is where the rules tightened up. Interest on a home equity loan or home equity line of credit (HELOC) is deductible only if you used the money to buy, build, or substantially improve the home that secures the loan. Took out a HELOC to consolidate credit card debt or fund a vacation? That interest isn't deductible. The IRS has been clear about this since the Tax Cuts and Jobs Act changed the rules, and it applies regardless of when the home equity loan was originally taken out.

Mortgage Interest Deduction: A Real-Numbers Example

Let's go over this with real numbers, because that's when it makes sense. AmeriSave can help you figure out your specific situation, but here's how the math works in general.
Let's say you and your spouse are filing taxes together. You got a 30-year fixed-rate mortgage for $400,000 to buy a home. The interest rate was 6.75%. You would pay about $26,811 in mortgage interest in your first year. You also gave $4,000 to charity and paid $8,500 in state and local taxes.

Put those numbers together. Your total itemized deductions are $39,311. The standard deduction for married couples filing jointly in 2025 is $31,500. It makes sense to itemize here because $39,311 is more than $31,500. This gives you an extra $7,811 in deductions on top of what the standard deduction would give you.

Now let's talk about how to save on taxes. That $26,811 in mortgage interest alone lowers your taxable income by that amount if you are in the 22% federal tax bracket. The interest deduction would save you about $5,898 in federal taxes (that's $26,811 times 0.22). That's about $491 in tax savings every month for 12 months. That's just the benefit from the federal government. The savings could be even bigger if you live in a state that has its own income tax.

One thing to remember. As the years go by and you pay off your mortgage, more of each payment goes toward the principal and less goes toward the interest. So, over time, this deduction's value naturally goes down. In the 15th year of that loan, your annual interest would drop to about $17,200, and your tax savings at the 22% bracket would drop to about $3,784. In year 25, interest drops even more, to about $7,500. This might not be enough to make itemizing worth it on its own.

How to Claim the Mortgage Interest Deduction on Your Tax Return

It's not hard to claim this deduction, but you do need to fill out some forms and make a choice about how you file.

Get your IRS Form 1098 ready first. Your lender has to send this to you by January 31 every year. It shows how much mortgage interest you paid in the previous tax year. Box 1 shows the mortgage interest you got, and box 6 shows any points you paid when you first got the loan. If you have more than one mortgage, each lender will send you a separate Form 1098. AmeriSave makes sure that borrowers get their 1098s on time so they are ready for tax season.

Next, you need to decide if you want to itemize. Gather all of your possible itemized deductions, such as mortgage interest, state and local taxes (up to the $40,000 SALT cap for the 2025 tax year), charitable donations, and any medical expenses that are more than 7.5% of your adjusted gross income. If the total is more than your standard deduction, itemizing will save you more.

After that, fill out Schedule A on your Form 1040. Line 8a of Schedule A is where you put the amount of interest on your mortgage from Form 1098. Put points on line 8c if you paid them. Put your lender's name, address, and tax ID number from the 1098 in the right boxes. You can still claim the deduction even if you didn't get a Form 1098, which can happen with private or seller-financed loans. On line 8b of Schedule A, all you have to do is write down the lender's information and the interest amount. You should also keep your own records as backup.

A quick note for homeowners who have big loans. You can still claim a partial deduction even if your total mortgage balance is higher than the deduction limit (which is $750,000 for loans taken out after 2017). You'd figure out how much of the interest you can deduct by dividing the limit by your actual balance. If your mortgage balance is $900,000, you could deduct about 83% of the interest you paid that year ($750,000 divided by $900,000).

Standard Deduction vs. Itemizing: When the Math Tips

This is the part where I see a lot of confusion, even among colleagues who've been in the mortgage industry for years. The standard deduction has gotten so large now that many homeowners actually come out ahead by taking it instead of itemizing.

Before the Tax Cuts and Jobs Act took effect, the standard deduction for a married couple was $12,700. At that level, plenty of homeowners could easily itemize because mortgage interest alone often exceeded the standard deduction. But the standard deduction has more than doubled since then. For the 2025 tax year, it's $31,500 for joint filers. That's a high bar to clear.

So who still benefits from itemizing? Generally, homeowners with larger mortgages (closer to the $750,000 limit), people living in states with high income or property taxes, and those who make sizable charitable contributions. If you live in a state with no income tax and your mortgage is relatively small, the standard deduction will probably serve you better.

Let me put some context around this. If you have a $250,000 mortgage at 6.5%, your first-year interest is roughly $16,150. On its own, that doesn't clear the $15,750 standard deduction for a single filer, and it's barely over half the $31,500 threshold for joint filers. You'd need substantial state and local tax payments, charitable giving, or other deductible expenses to close the gap. But bump that mortgage up to $450,000 at the same rate, and your first-year interest jumps to about $29,070. Now you're getting close to the joint filer threshold before you've even added your other deductions.

There's also a timing factor that people miss. In my experience working on mortgage content at AmeriSave, I've noticed that homeowners who bought recently with a larger loan benefit the most from itemizing during those first several years when interest payments are highest. As the loan ages and the interest portion of your payment shrinks, you might reach a point where switching to the standard deduction makes more sense. It's worth revisiting the calculation every year rather than putting it on autopilot.

There's no shame in running the numbers both ways. Tax software makes this easy. Plug in your figures and compare. And if you're working with AmeriSave on a new loan or a refinance, understanding how your mortgage interest fits into your overall tax picture is part of making a smart financial decision.

Mistakes to Avoid and Questions Worth Asking Your Lender

After being around mortgage content for as long as I have, I keep seeing the same mistakes and missed opportunities. Here are the ones worth knowing about.

First, don't assume you should always itemize just because you have a mortgage. Run the numbers. With the standard deduction where it is now, plenty of homeowners save more by not itemizing. Don't leave money on the table because of an assumption you haven't tested.

Second, watch the loan balance limits. If you refinanced and pulled cash out, your total qualifying debt might exceed $750,000, and you'd only get a partial deduction on the interest. People don't always think about this when they tap their equity.

Third, don't deduct interest on a home equity loan used for something other than home improvements. That kitchen renovation counts. That trip to Europe doesn't. The IRS has been clear about this since the rules changed.

And fourth, check Form 1098 for accuracy. Lenders occasionally make errors. If the interest amount on your 1098 doesn't match your own records, contact your servicer before filing. It's a lot easier to fix before you submit than after.

Before you build your tax strategy around this deduction, ask your lender how much of your payment goes to interest versus principal. Ask for an amortization schedule if you don't already have one. It maps out exactly how your interest payments change year by year, and it gives you a real picture of what your deduction could look like over the life of the loan.

Ask your tax advisor whether itemizing or the standard deduction saves you more. Don't assume one way or the other. And consider where you live. In high-tax states, the combination of mortgage interest, state income taxes, and property taxes can push you well above the standard deduction threshold. Here in Louisville, I've seen it go both ways for families in our area depending on the size of the mortgage and their charitable giving. Kentucky has a flat state income tax, so that piece is more predictable than in states with graduated brackets.

The Bottom Line

The mortgage interest deduction can be a meaningful tax benefit, but it's not automatic. You have to itemize, your loan has to meet the IRS limits, and the math has to work in your favor compared to the standard deduction. For homeowners with larger mortgages or those in higher tax brackets, the savings can add up to thousands of dollars every year. The best move is to gather your Form 1098, run the numbers both ways, and make the choice that saves you the most. If you're considering a new home purchase or refinance, AmeriSave can help you understand how your loan fits into the bigger financial picture.

Frequently Asked Questions

You can deduct the interest on the mortgage for one second home in addition to your main home. Loans that were made after December 15, 2017, can't have a combined mortgage balance on both properties that is more than $750,000. If you rent out the second home, you have to use it yourself for at least 14 days a year or 10% of the rental days, whichever is more. AmeriSave's mortgage options can help you find the best way to pay for a second home while getting the most tax breaks.

You can deduct the interest you pay on up to $750,000 of mortgage debt that qualifies ($375,000 if you are married and filing separately). Loans that were taken out before December 16, 2017, may be eligible for the higher $1 million limit. The amount you can deduct depends on your tax bracket. If a homeowner in the 24% tax bracket paid $20,000 in interest, they could save about $4,800 in federal taxes. AmeriSave's mortgage calculator can help you understand how mortgage costs affect your finances.

The lender sends you Form 1098, the Mortgage Interest Statement, by January 31 each year. It tells you how much interest you paid on your mortgage in the last tax year, as well as any points and mortgage insurance premiums. When you file your federal return, you'll need this form to fill out Schedule A. You will get a different 1098 for each of your loans if you have more than one. For more information on how to understand your mortgage documents, visit AmeriSave's Resource Center.

No. You can only get the mortgage interest deduction if you list your deductions on Schedule A. You can't take both the standard deduction and itemized deductions in the same year. The standard deduction for single filers in 2025 is $15,750, and for joint filers, it is $31,500. This means that itemizing only saves you money if your total deductions are higher than those amounts. You can use AmeriSave's prequalification tool to get an idea of how much your mortgage might cost.

Yes. Discount points are interest that you pay in advance, and you can usually deduct them. If you paid points at closing on a purchase loan and met certain IRS requirements, you can usually deduct the whole amount in the year you paid it. Points usually have to be taken off of refinance loans over the life of the loan. A point on a $300,000 loan costs $3,000. That's an extra $100 in deductions each year for 30 years. The people at AmeriSave can help you figure out how much it will cost to buy points compared to how much money you will save in the long run.

It all depends on what you did with the money. You can only deduct the interest on a home equity loan or HELOC if you used the money to buy, build, or make major improvements to the home that secured the loan. You can't deduct the interest if you used the money for personal things like paying off credit cards. This rule applies to all home equity debt, no matter when the loan was taken out. If you're thinking about using your home equity to make improvements, check out AmeriSave's home equity options.

For the purpose of the deduction limit, the new loan is treated as if it started on the same day as the original mortgage when you refinance. If you took out your original loan before December 16, 2017, you can keep the $1 million limit as long as the new balance is not higher than the old one. The $750,000 limit applies to any extra money borrowed above the previous balance. You have to take points off of a refinance over the life of the loan. AmeriSave's refinancing options can help you understand how your finances will change.

The Tax Cuts and Jobs Act lowered the limit on deductible mortgage debt for loans made after December 15, 2017, from $1 million to $750,000. It also almost doubled the standard deduction, which means that fewer homeowners can benefit from itemizing. The old $1 million limit still applies to loans taken out before that date. The $40,000 SALT deduction cap for the 2025 tax year also has an effect on whether or not it makes sense to itemize. Visit AmeriSave's Resource Center to find out more.

Not by using the mortgage interest deduction on Schedule A. You can only use that deduction for your main home and one second home. When you report rental income and expenses on Schedule E, you can deduct the interest on a rental property mortgage as a business expense. The rules are different, and the deduction is taken from your rental income instead of your personal income. AmeriSave has loans that are good for investment properties.

You can still get a partial deduction. The IRS lets you deduct a percentage of your interest based on how much your loan balance is compared to the limit. If your mortgage balance is $1 million and the limit is $750,000, you can deduct 75% of the interest you pay each year. That's $37,500 in deductible interest on $50,000 of interest paid. You can use AmeriSave's mortgage calculator to figure out how much interest you'll pay each year on different loan amounts.

Key Takeaways
What Is the Mortgage Interest Deduction?
How the Mortgage Interest Deduction Works
What Counts as Deductible Mortgage Interest
Which Loans Qualify for the Deduction
Mortgage Interest Deduction: A Real-Numbers Example
How to Claim the Mortgage Interest Deduction on Your Tax Return
Standard Deduction vs. Itemizing: When the Math Tips
Mistakes to Avoid and Questions Worth Asking Your Lender
The Bottom Line
FAQs

What Is the Mortgage Interest Deduction? One of the oldest tax breaks for American homeowners is the mortgage interest deduction. It works by letting you take the interest you pay on a qualifying home loan off of your taxable income. That sounds pretty simple, but there are parts of it that surprise people every year when they file their taxes. This is the main idea. When you pay your mortgage each month, some of the money goes toward the loan's principal balance and some goes toward interest. You can deduct the interest part from your income when you file your federal tax return, but only if you list your deductions instead of taking the standard deduction. This doesn't mean that your tax bill will go down by a dollar for every dollar you owe. It's a lower amount of money that the IRS uses to figure out how much you owe. Why should this matter to you? Because for a lot of homeowners, the interest on their mortgage is the biggest expense they can write off. Most of your monthly payment goes toward interest rather than principal in the first few years of a 30-year loan. If you have a $400,000 mortgage at 6.75%, you'd pay about $26,800 in interest in the first year alone. If you pay 22% in federal taxes, you could save about $5,896 on your tax bill by taking that interest off. That's a lot of money. The Sixteenth Amendment made the federal income tax law in 1913, and this deduction has been part of the law ever since. At that time, Congress let people deduct interest on all of their personal loans, not just their mortgages. Most Americans bought their homes with cash, and only 1% of the population made enough money to pay income taxes. The mortgage interest deduction didn't become the big tax break we know today until after World War II, when the FHA started insuring 30-year loans and homeownership rates went through the roof. The Tax Reform Act of 1986 got rid of most other personal interest deductions, like those for credit cards and auto loans. However, it kept the mortgage version. It has survived every major change to the tax code since. How the Mortgage Interest Deduction Works Claiming this deduction comes down to a few moving parts, and it helps to walk through each one so you know what you're dealing with. First, you need a mortgage on a qualified home. According to the IRS, a qualified home can be your main residence or one second home. It has to have sleeping, cooking, and bathroom facilities. So yes, a condo, a mobile home, and even a houseboat can count. Second, you have to itemize your deductions on Schedule A of your federal tax return. You can take the standard deduction or you can itemize, but not both. For the 2025 tax year, the standard deduction is $15,750 for single filers and $31,500 for married couples filing jointly, according to the Internal Revenue Service. Itemizing only benefits you if your total deductible expenses exceed those amounts. Third, there are loan limits. If you took out your mortgage after December 15, 2017, you can deduct interest on the first $750,000 of debt ($375,000 if married filing separately). Loans that originated before that date still fall under the older limit of $1 million ($500,000 if married filing separately). That cutoff date comes from the Tax Cuts and Jobs Act, which lowered the cap as part of a broader overhaul of individual tax rules. And here's something people forget. These limits apply to the combined balance of all your qualifying mortgages. So if you have a primary mortgage and a home equity loan, those balances add together when determining whether you're over the cap. What Counts as Deductible Mortgage Interest The interest on your regular monthly payment is the obvious one. But several other costs can qualify under this deduction, and they're easy to overlook. Mortgage Points When you close on a home loan, you might pay discount points to lower your interest rate. One point typically costs 1% of the loan amount. Because points are a form of prepaid interest, the IRS generally lets you deduct them. If you paid the points directly at closing for a purchase loan that meets certain conditions, you can usually deduct the full amount in the year you paid them. So if you bought two points on a $350,000 loan, that's $7,000 you could potentially deduct in year one. For a refinance, you'll typically need to spread the deduction evenly across the life of the loan, which means deducting a fraction of the cost each year. AmeriSave can help you weigh whether buying points makes financial sense for your situation. Late Payment Charges and Prepayment Penalties This one surprises people. If your lender charges a late fee because your payment was overdue, that charge can qualify as mortgage interest for tax purposes. The catch is that the fee has to be a charge for the late use of money, not a fee for a specific service your lender performed. Similarly, if your lender imposes a prepayment penalty because you paid off your mortgage ahead of schedule, that amount can also be deducted as mortgage interest. Not every lender charges prepayment penalties, but if yours does, at least that cost comes with a small tax upside. Interest Paid Before Selling Your Home If you sell your home midway through the year, you can still deduct the interest you paid on the mortgage up until the date you closed the sale. Your settlement statement will show exactly how much interest was paid through the sale date. What Doesn't Qualify Just as important as knowing what counts is knowing what doesn't. Homeowners insurance premiums aren't deductible under this provision. Private mortgage insurance (PMI) premiums, VA funding fees, and USDA guarantee fees also don't currently qualify as deductible mortgage interest for the 2025 tax year. Closing costs like title fees, appraisal fees, recording charges, and home inspection costs are excluded too. Moving expenses aren't deductible either, unless you're an active-duty service member relocating under military orders. Interest on a reverse mortgage isn't deductible while the loan is outstanding because you aren't actually making interest payments during that time. You can only deduct reverse mortgage interest after the loan is repaid. And your down payment, earnest money, and any deposits you made during the home buying process? Those aren't interest, so they don't count either. Which Loans Qualify for the Deduction Most standard home loans qualify, but the rules get more specific depending on the type of property and loan you have. Primary Residence Mortgages Any mortgage secured by your main home generally qualifies, as long as the property has basic living amenities. It doesn't matter whether it's a single-family house, a condo, a co-op, or a manufactured home. Even a timeshare arrangement can qualify if it meets the IRS requirements for a qualified home. The key requirement is that the home serves as collateral for the loan. If you own a co-op, you can deduct your share of the corporation's mortgage interest, which is a detail many co-op owners don't realize. AmeriSave offers several loan options for primary residence purchases, including conventional, FHA, and VA loans. Second Home Mortgages You can deduct interest on a mortgage for one second home, but there's a rental wrinkle. If you rent out that second home, you have to live in it for at least 14 days during the year or 10% of the total days it's rented, whichever is longer. Fall short of that personal-use test, and the IRS treats it as a rental property instead. You can only designate one second home at a time for this deduction, though you can switch which home qualifies each tax year. Home Equity Loans and Lines of Credit This is where the rules tightened up. Interest on a home equity loan or home equity line of credit (HELOC) is deductible only if you used the money to buy, build, or substantially improve the home that secures the loan. Took out a HELOC to consolidate credit card debt or fund a vacation? That interest isn't deductible. The IRS has been clear about this since the Tax Cuts and Jobs Act changed the rules, and it applies regardless of when the home equity loan was originally taken out. Mortgage Interest Deduction: A Real-Numbers Example Let's go over this with real numbers, because that's when it makes sense. AmeriSave can help you figure out your specific situation, but here's how the math works in general. Let's say you and your spouse are filing taxes together. You got a 30-year fixed-rate mortgage for $400,000 to buy a home. The interest rate was 6.75%. You would pay about $26,811 in mortgage interest in your first year. You also gave $4,000 to charity and paid $8,500 in state and local taxes. Put those numbers together. Your total itemized deductions are $39,311. The standard deduction for married couples filing jointly in 2025 is $31,500. It makes sense to itemize here because $39,311 is more than $31,500. This gives you an extra $7,811 in deductions on top of what the standard deduction would give you. Now let's talk about how to save on taxes. That $26,811 in mortgage interest alone lowers your taxable income by that amount if you are in the 22% federal tax bracket. The interest deduction would save you about $5,898 in federal taxes (that's $26,811 times 0.22). That's about $491 in tax savings every month for 12 months. That's just the benefit from the federal government. The savings could be even bigger if you live in a state that has its own income tax. One thing to remember. As the years go by and you pay off your mortgage, more of each payment goes toward the principal and less goes toward the interest. So, over time, this deduction's value naturally goes down. In the 15th year of that loan, your annual interest would drop to about $17,200, and your tax savings at the 22% bracket would drop to about $3,784. In year 25, interest drops even more, to about $7,500. This might not be enough to make itemizing worth it on its own. How to Claim the Mortgage Interest Deduction on Your Tax Return It's not hard to claim this deduction, but you do need to fill out some forms and make a choice about how you file. Get your IRS Form 1098 ready first. Your lender has to send this to you by January 31 every year. It shows how much mortgage interest you paid in the previous tax year. Box 1 shows the mortgage interest you got, and box 6 shows any points you paid when you first got the loan. If you have more than one mortgage, each lender will send you a separate Form 1098. AmeriSave makes sure that borrowers get their 1098s on time so they are ready for tax season. Next, you need to decide if you want to itemize. Gather all of your possible itemized deductions, such as mortgage interest, state and local taxes (up to the $40,000 SALT cap for the 2025 tax year), charitable donations, and any medical expenses that are more than 7.5% of your adjusted gross income. If the total is more than your standard deduction, itemizing will save you more. After that, fill out Schedule A on your Form 1040. Line 8a of Schedule A is where you put the amount of interest on your mortgage from Form 1098. Put points on line 8c if you paid them. Put your lender's name, address, and tax ID number from the 1098 in the right boxes. You can still claim the deduction even if you didn't get a Form 1098, which can happen with private or seller-financed loans. On line 8b of Schedule A, all you have to do is write down the lender's information and the interest amount. You should also keep your own records as backup. A quick note for homeowners who have big loans. You can still claim a partial deduction even if your total mortgage balance is higher than the deduction limit (which is $750,000 for loans taken out after 2017). You'd figure out how much of the interest you can deduct by dividing the limit by your actual balance. If your mortgage balance is $900,000, you could deduct about 83% of the interest you paid that year ($750,000 divided by $900,000). Standard Deduction vs. Itemizing: When the Math Tips This is the part where I see a lot of confusion, even among colleagues who've been in the mortgage industry for years. The standard deduction has gotten so large now that many homeowners actually come out ahead by taking it instead of itemizing. Before the Tax Cuts and Jobs Act took effect, the standard deduction for a married couple was $12,700. At that level, plenty of homeowners could easily itemize because mortgage interest alone often exceeded the standard deduction. But the standard deduction has more than doubled since then. For the 2025 tax year, it's $31,500 for joint filers. That's a high bar to clear. So who still benefits from itemizing? Generally, homeowners with larger mortgages (closer to the $750,000 limit), people living in states with high income or property taxes, and those who make sizable charitable contributions. If you live in a state with no income tax and your mortgage is relatively small, the standard deduction will probably serve you better. Let me put some context around this. If you have a $250,000 mortgage at 6.5%, your first-year interest is roughly $16,150. On its own, that doesn't clear the $15,750 standard deduction for a single filer, and it's barely over half the $31,500 threshold for joint filers. You'd need substantial state and local tax payments, charitable giving, or other deductible expenses to close the gap. But bump that mortgage up to $450,000 at the same rate, and your first-year interest jumps to about $29,070. Now you're getting close to the joint filer threshold before you've even added your other deductions. There's also a timing factor that people miss. In my experience working on mortgage content at AmeriSave, I've noticed that homeowners who bought recently with a larger loan benefit the most from itemizing during those first several years when interest payments are highest. As the loan ages and the interest portion of your payment shrinks, you might reach a point where switching to the standard deduction makes more sense. It's worth revisiting the calculation every year rather than putting it on autopilot. There's no shame in running the numbers both ways. Tax software makes this easy. Plug in your figures and compare. And if you're working with AmeriSave on a new loan or a refinance, understanding how your mortgage interest fits into your overall tax picture is part of making a smart financial decision. Mistakes to Avoid and Questions Worth Asking Your Lender After being around mortgage content for as long as I have, I keep seeing the same mistakes and missed opportunities. Here are the ones worth knowing about. First, don't assume you should always itemize just because you have a mortgage. Run the numbers. With the standard deduction where it is now, plenty of homeowners save more by not itemizing. Don't leave money on the table because of an assumption you haven't tested. Second, watch the loan balance limits. If you refinanced and pulled cash out, your total qualifying debt might exceed $750,000, and you'd only get a partial deduction on the interest. People don't always think about this when they tap their equity. Third, don't deduct interest on a home equity loan used for something other than home improvements. That kitchen renovation counts. That trip to Europe doesn't. The IRS has been clear about this since the rules changed. And fourth, check Form 1098 for accuracy. Lenders occasionally make errors. If the interest amount on your 1098 doesn't match your own records, contact your servicer before filing. It's a lot easier to fix before you submit than after. Before you build your tax strategy around this deduction, ask your lender how much of your payment goes to interest versus principal. Ask for an amortization schedule if you don't already have one. It maps out exactly how your interest payments change year by year, and it gives you a real picture of what your deduction could look like over the life of the loan. Ask your tax advisor whether itemizing or the standard deduction saves you more. Don't assume one way or the other. And consider where you live. In high-tax states, the combination of mortgage interest, state income taxes, and property taxes can push you well above the standard deduction threshold. Here in Louisville, I've seen it go both ways for families in our area depending on the size of the mortgage and their charitable giving. Kentucky has a flat state income tax, so that piece is more predictable than in states with graduated brackets. The Bottom Line The mortgage interest deduction can be a meaningful tax benefit, but it's not automatic. You have to itemize, your loan has to meet the IRS limits, and the math has to work in your favor compared to the standard deduction. For homeowners with larger mortgages or those in higher tax brackets, the savings can add up to thousands of dollars every year. The best move is to gather your Form 1098, run the numbers both ways, and make the choice that saves you the most. If you're considering a new home purchase or refinance, AmeriSave can help you understand how your loan fits into the bigger financial picture.