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Mortgage Interest Tax Deductions
What you'll learn: All about the mortgage interest tax deduction, plus other homeowner tax breaks.
EXPECTED READ TIME: 6 MINUTES
April 15, 2019 | Updated December 4, 2023
Becoming a homeowner is thrilling, but it also comes with a host of new expenses. Mortgage payments, property taxes, insurance, repairs, home improvements … the list goes on. And with costs running high these days, you may be wondering what mortgage interest tax deductions are available to your family.
When tax season rolls around, you may be afforded certain advantages due to the tax deductions your home can provide. Deductions in general reduce the amount of your taxable income.
What is the mortgage interest tax deduction
But what exactly is the mortgage interest tax deduction? It’s a tax deduction for mortgage interest paid on the first $750,000 of mortgage debt. This deduction tends to be a favorite amongst homeowners since such a big percentage of the deduction it goes toward interest. It’s important to note though, that claiming the mortgage interest deduction requires itemizing your tax return.
Mortgage interest deduction limit
The Internal Revenue Service (IRS) documents rules for mortgage interest tax deductions in Publication 936: Home Mortgage Interest Deduction. For the most part, you may be able to deduct the entire interest portion of your mortgage payment if you itemize your deductions on Schedule A (Form 1040). Generally, the interest you pay must be on a loan secured by a main home or a second home. Typically, the loan can be a first or second mortgage, a home improvement loan, a home equity loan, or a refinanced mortgage. Consult a tax advisor for further information regarding the tax deductibility of interest.
However, there are mortgage deduction limits homeowners should be aware of:
- Loans taken out after December 15, 2017 – limit of $750,000 ($375,000 for married couples filing separately)
- Loans taken out on or before December 15, 2017 – $1 million ($500,000 for married couples filing separately)
- Loan proceeds not used to buy, build, or substantially improve your home – not eligible unless the loan was taken out before October 13, 1987; see IRS Pub. 936
- Loans that exceed the fair market value of the home; see IRS Pub. 936
Mortgage interest tax form
Form 1098 is used to report contributions and possible tax-deductible expenses to the IRS and taxpayers.
It’s required by the IRS to have the forms completed by January 31 of each year so taxpayers can utilize the information to complete their tax returns. 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. Lenders MUST file a separate Form 1098 for each mortgage that they hold.
The following information can be found on the form:
- Lender's name, address, phone number, and taxpayer identification number
- Taxpayer's name, address, and taxpayer identification number
- Amount of mortgage interest received
- Outstanding mortgage principal
- Mortgage origination date
- Any refund of overpaid interest
- Mortgage insurance premiums paid
- Points paid on the purchase of a principal residence
- Address or a description of the property
- Number of properties securing the mortgage
- Date the mortgage was acquired by the lender during the current year
Tax breaks for homeowners
Aside from the mortgage interest tax deduction, there are even more tax breaks available for homeowners come tax season. These tax deductions can add up to thousands of dollars, but in order to claim them your itemized deductions must exceed the IRS standard deduction. It may take some math, but you can determine if you want to itemize by adding up homeowners and other tax deductions that you qualify for. If the sum is more than the standard deduction, then you’ll want to itemize. If not, take the standard deduction.
Tax deductions for homeowners (aside from mortgage interest) may include:
- Home equity loan interest
- Discount points
- Property taxes
- Home office expenses
- Medically necessary home improvements
- Mortgage insurance
- Capital gains
Though these deductions may not be as large as the mortgage interest tax deduction, they may add up and be worth claiming. It’s always best to consult a tax professional before you file, as every tax situation is different.
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Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
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