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Open the Mortgage Interest Deduction Calculator →IRC §163(h) lets you deduct interest on home acquisition debt up to $750,000 ($375,000 married filing separately) for debt taken out after December 15, 2017, or $1,000,000 ($500,000 separately) for older debt. If your average mortgage balance exceeds the limit, you deduct only the interest times (limit divided by average balance). Interest on a home-equity loan counts only when the proceeds buy, build, or substantially improve the home. Mortgage insurance premiums are deductible again for 2026, phasing out above $100,000 of AGI, but were expired for 2025. The deduction is claimed on Schedule A, so it helps only if you itemize. The One Big Beautiful Bill Act made the $750,000 limit and the home-equity rule permanent.
- Acquisition-debt limit: $750,000 ($375,000 MFS) for debt after Dec 15, 2017; $1,000,000 ($500,000 MFS) for Oct 1987 to Dec 2017 debt, under §163(h)(3).
- Permanent now: the One Big Beautiful Bill Act locked in the $750,000 limit and the home-equity disallowance that were set to expire after 2025.
- Over-limit math: deductible interest equals interest times (limit divided by average balance), the qualified-loan-limit method in Pub 936 Table 1.
- Home-equity interest: deductible only if the proceeds buy, build, or substantially improve the home that secures the loan.
- Two homes: a qualified residence is your main home plus one other residence; their balances share a single combined limit.
- Mortgage insurance: deductible for 2026 and later, phasing out 10% per $1,000 of AGI over $100,000 ($50,000 MFS) and gone above $109,000 ($54,500 MFS); expired for 2025.
- Grandfathered debt: mortgages from on or before October 13, 1987 are fully deductible with no dollar limit.
- Itemize to benefit: the deduction sits on Schedule A, line 8a, and helps only if itemized deductions beat the standard deduction.
- Points: usually amortized over the loan term, except points to buy or build your main home, which can be deducted in the year paid.
- Form 1098: your lender reports the interest, points, and any mortgage insurance premiums on this statement.
What the Mortgage Interest Deduction Is
Internal Revenue Code Section 163(h) generally disallows a deduction for personal interest, but it carves out an exception for qualified residence interest. That exception is what most people call the home mortgage interest deduction. If you itemize, you can subtract the interest you pay on a loan secured by your main home or a second home from your taxable income, within limits tied to how much you borrowed and when.
Two kinds of debt qualify: acquisition debt, used to buy, build, or substantially improve a home, and home-equity debt. Since 2018, home-equity interest is deductible only if the borrowed money also went into the home, which narrowed the deduction sharply. The interest you pay is reported to you by your lender on Form 1098, and you claim the deduction on Schedule A (Form 1040).
Why the Deduction Helps Fewer People Than It Used To
The deduction has not disappeared, but two changes made it matter less for typical homeowners. First, the acquisition-debt cap dropped from $1 million to $750,000 for loans after 2017. Second, and more important, the standard deduction roughly doubled, so a homeowner needs sizable mortgage interest plus other write-offs before itemizing beats the standard amount. Many people with smaller mortgages now take the standard deduction and get no separate benefit from their interest.
The $750,000 vs $1 Million Acquisition-Debt Limit
The deductible amount of interest is capped by the amount of acquisition debt the law lets you count. Which cap applies depends entirely on when the debt was incurred.
| When the debt was incurred | Limit (most filers) | Married filing separately |
|---|---|---|
| After December 15, 2017 | $750,000 | $375,000 |
| October 14, 1987 to December 15, 2017 | $1,000,000 | $500,000 |
| On or before October 13, 1987 (grandfathered) | No limit | No limit |
The limits apply to the combined balance of the mortgages on your main home and one second home, not to each loan separately. A binding-contract exception lets a buyer who signed before December 15, 2017 and closed before April 1, 2018 use the higher $1,000,000 limit. When you refinance, the new loan keeps the original debt's date and limit up to the balance of the old loan; only the part of a refinance that exceeds the old balance is treated as newly incurred.
For years this $750,000 cap was scheduled to sunset after 2025 and snap back to $1,000,000. The One Big Beautiful Bill Act removed that sunset, so the $750,000 figure is now the permanent law. See the OBBBA section below for the full picture.
How the Deduction Is Calculated (Pub 936 Table 1)
If all your mortgage balances stay under the applicable limit all year, the math is simple: every dollar of acquisition-debt interest is deductible. The work begins only when your average balance is above the limit.
Step 1: Find Your Average Mortgage Balance
Publication 936 offers several ways to compute the average balance for the year. The most common is the average of the first and last balance: add the balance at the start of the year and the balance at the end, then divide by two. You can also use interest paid divided by the interest rate, or the figures your lender provides. Combine the balances on your main home and second home.
Step 2: Apply the Qualified-Loan-Limit Ratio
Divide your limit by your average balance to get a fraction no greater than 1.000, then multiply your total interest by that fraction. If you paid $40,000 of interest on a $1,000,000 average balance with a $750,000 limit, the fraction is 0.750 and your deductible interest is $30,000. The remaining $10,000 is nondeductible personal interest. The Mortgage Interest Deduction Calculator runs this calculation for you.
Step 3: Report on Schedule A
Deductible mortgage interest and points reported to you on Form 1098 go on Schedule A, line 8a. Interest you paid but that was not reported on a Form 1098, such as seller-financed interest, goes on line 8b, and points not on Form 1098 go on line 8c. Because it is an itemized deduction, the figure only reduces your tax if you itemize.
When Home-Equity Loan Interest Is Deductible
This is the rule that catches the most people. Before 2018, you could deduct interest on up to $100,000 of home-equity debt no matter what you spent the money on. That separate allowance is gone. Interest on a home-equity loan or line of credit is now deductible only if the proceeds were used to buy, build, or substantially improve the home that secures the loan.
The use of the money, not the label on the loan, controls the result:
- Deductible: a HELOC used to add a room, replace the roof, or remodel the kitchen of the home that secures it. That spending makes the debt acquisition debt, and it counts toward the $750,000 or $1,000,000 limit.
- Not deductible: a home-equity loan used to buy a car, pay off credit cards, cover tuition, or fund a vacation. The interest is nondeductible personal interest even though the loan is secured by your home.
Because the disallowance turns on how the proceeds were spent, the burden is on you to document it. Keep records connecting the loan draw to the home improvement, since on audit the IRS can ask you to trace the money. This home-equity disallowance, like the $750,000 limit, was made permanent by the One Big Beautiful Bill Act.
Points and Prepaid Interest
Points are charges a lender uses to describe prepaid interest, sometimes called loan origination fees, discount points, or maximum loan charges. Because they are prepaid interest, the default rule is that you deduct them ratably over the life of the loan rather than all at once.
There is an important exception. You can deduct points in full in the year you pay them if the loan is used to buy or build your main home and the points meet the tests in Publication 936, including that paying points is an established practice in your area, the points are not more than the area norm, and you provided funds at closing at least equal to the points. Points to substantially improve your main home can also be deducted in the year paid if those tests are met.
Two common situations spread the deduction out. Points on a refinance are generally deducted over the new loan's term, except for the share tied to substantial improvements paid for with your own funds. Points on a second home must always be amortized over the loan term, never deducted in full up front. Amounts a lender charges for services, such as appraisal or notary fees, are not points and are not deductible at all.
Qualified Home and Second-Home Rules
A qualified residence is your main home plus one other residence that you select for the year. Your main home is where you ordinarily live most of the time. The second home can be a house, condominium, mobile home, boat, or similar property, as long as it has sleeping, cooking, and toilet facilities.
- One second home at a time. If you own several additional properties, you choose which one counts as the qualified second home each year; interest on the others is not deductible as home mortgage interest.
- Rented second home. If you rent out the second home, you must also use it personally for more than the greater of 14 days or 10 percent of the rental days for it to count as a residence. A home you never live in is treated as rental property under different rules.
- Secured debt requirement. The mortgage must be secured by the home, meaning the home is collateral and the lien is recorded under state law. Unsecured debt used to buy a home does not generate deductible mortgage interest.
- Cooperatives. A tenant-stockholder in a cooperative housing corporation can deduct a share of the cooperative's mortgage interest, even though the stock, rather than a deed, secures the debt.
The single combined limit applies across both homes. A taxpayer with a $600,000 balance on a main home and a $300,000 balance on a second home has $900,000 of acquisition debt tested against the $750,000 cap, so part of the interest is nondeductible.
Itemizing vs the Standard Deduction
The mortgage interest deduction lives on Schedule A alongside state and local taxes, charitable contributions, and medical expenses. It produces a tax benefit only when your total itemized deductions exceed your standard deduction. With today's large standard deduction, that threshold is higher than many homeowners realize.
Consider the moving parts. State and local taxes are capped, medical expenses must clear a percentage-of-income floor, and charitable gifts vary year to year. For a homeowner with a modest mortgage and a capped state-tax deduction, the combined itemized total can still fall short of the standard deduction, leaving the mortgage interest with no separate value. Run the comparison with the Itemize vs Standard Deduction Calculator and check the current standard amounts in the Standard Deduction Guide.
Where the totals are close, bunching can help: paying two years of property tax or making two years of charitable gifts in one year can push you over the standard deduction in that year, then you take the standard deduction the next. The Itemized Deductions List walks through everything that goes on Schedule A, and the SALT Deduction Calculator handles the state and local tax piece.
What the One Big Beautiful Bill Act Made Permanent
The 2017 tax law set the $750,000 acquisition-debt limit and the home-equity disallowance to expire after 2025. Without action, the limit would have reverted to $1,000,000 and home-equity interest would again have been deductible up to $100,000 regardless of use. The One Big Beautiful Bill Act (P.L. 119-21) changed that.
- The $750,000 limit is permanent. The sunset was removed, so debt incurred after December 15, 2017 stays capped at $750,000 ($375,000 married filing separately) with no scheduled reversion.
- The home-equity disallowance is permanent. Interest on home-equity debt remains deductible only when the proceeds buy, build, or substantially improve the home.
- Mortgage insurance premiums are back. For tax years beginning after December 31, 2025, qualified mortgage insurance premiums are again treated as deductible interest, subject to the AGI phase-out described above.
The grandfathered $1,000,000 limit for pre-December-16-2017 debt was never affected and continues. In short, the Act did not raise or lower the mortgage interest limits; it cemented the rules that were already in force and added back the mortgage insurance deduction for 2026 onward.
Want to see exactly how much of your interest survives the limit and the home-equity rule? Run your numbers in the calculator.
Open the Mortgage Interest Deduction Calculator →Practitioner Insight (LMN Tax Inc.)
The first thing we check on a new homeowner client is not the interest figure on the 1098, it is whether they even itemize. With the standard deduction where it is, a couple with a $300,000 mortgage and capped state taxes frequently lands below the standard amount, so their mortgage interest does nothing. We have had clients disappointed to learn the deduction they bought the house partly for produces no benefit. The honest answer is to model the return both ways before assuming the interest helps.
For higher-balance buyers, the bite is the qualified-loan-limit ratio. A client with a $1.4 million loan after 2017 can only count interest on the first $750,000, so nearly half their interest is lost. When clients ask us how much house they can carry, we work the after-tax cost of the slice above $750,000, because that portion behaves like nondeductible consumer debt. People are routinely surprised that two mortgages on a main and second home share one limit rather than getting a cap each.
Home-equity tracing is where we see the most avoidable mistakes. A client draws on a HELOC to consolidate debt or buy a vehicle, sees the interest on a 1098, and assumes it is deductible. It is not, because the money did not go into the home. We coach clients to document the use of every draw at the time, because reconstructing it years later for an audit is painful and the burden is squarely on the taxpayer.
The mortgage insurance return for 2026 is a modest, fast-phasing benefit. It is worth claiming for clients who put less than 20 percent down and sit under $100,000 of AGI, but it is gone by $109,000, so we do not build plans around it. We flag it, capture it where it applies, and move on. The bigger lever for most clients is still the itemize-versus-standard decision and, where it is close, bunching deductions into alternating years.
Real-World Scenarios
When the Standard Rules Do Not Apply
- Mixed grandfathered and newer debt. Pre-October-1987 grandfathered debt reduces the $750,000 or $1,000,000 limit available for later acquisition debt. If you carry both, combine them on Pub 936 Table 1 rather than treating each separately.
- More than two homes. Only a main home plus one selected second home are qualified residences. Interest on additional homes is not deductible as home mortgage interest.
- Cash-out refinancing. A refinance keeps the old date only up to the prior balance. Cash taken out and not used to improve the home is home-equity debt and may be nondeductible.
- Mortgage proceeds used for business or investment. If part of the loan funded a business or investment instead of the home, the related interest may be deductible elsewhere under the Publication 936 Table 2 reallocation rules.
- Reverse mortgages. Interest on a reverse mortgage is generally treated as home-equity interest and is not deductible until paid, which usually does not happen until the loan ends.
- Rental or mixed-use property. Interest on a rental, or the rented portion of a home, is deducted on Schedule E under different rules, not as itemized home mortgage interest.
- Married filing separately. The acquisition-debt limit is halved to $375,000 or $500,000, and spouses who do not file jointly must divide the qualified-residence allowance between them.
Frequently Asked Questions
What to Do Next
All your acquisition-debt interest is deductible, so the real question is whether to itemize. Add the interest to your other Schedule A items and compare with the standard deduction using the Itemize vs Standard Deduction Calculator.
Only the interest tied to the first $750,000 (or $1,000,000) is deductible. Find your exact deductible amount with the Mortgage Interest Deduction Calculator and weigh the after-tax cost of the excess debt before refinancing or buying up.
Confirm the proceeds were used to buy, build, or substantially improve the home before treating any of the interest as deductible, and keep a record of the spending. Review the rest of Schedule A in the Itemized Deductions List.
For 2026 and later, your mortgage insurance premiums may be deductible if your AGI is under the phase-out. Estimate it with the Mortgage Interest Deduction Calculator and check your AGI with the AGI & MAGI Calculator.
Related Tools and Guides
- IRC §163(h) (Cornell LII) — Disallowance of Deduction for Personal Interest — (h)(2)(D) qualified residence interest; (h)(3)(A) acquisition and home-equity debt; (h)(3)(B)(ii) $1,000,000 limit; (h)(3)(D) pre-October-1987 grandfathered debt; (h)(3)(E) qualified mortgage insurance and AGI phase-out; (h)(3)(F) post-2017 rules now permanent ($750,000 limit, home-equity disallowance, restored mortgage insurance); (h)(5)(A) qualified residence (main home plus one other).
- IRS Publication 936 — Home Mortgage Interest Deduction — The $750,000 and $1,000,000 limits, grandfathered-debt rules, the home-equity disallowance, the qualified-loan-limit method in Table 1, the average-balance methods, points, and the qualified-home and second-home rules.
- IRS Schedule A (Form 1040) and Instructions — Line 8a for home mortgage interest and points on Form 1098, line 8b for interest not on Form 1098, and line 8c for points not on Form 1098.
- IRS Form 1098 — Mortgage Interest Statement — Reports the mortgage interest (box 1), points (box 6), and mortgage insurance premiums (box 5) you paid during the year.
- IRS Tax Topic 505 — Interest Expense — Overview of deductible versus nondeductible interest, including home mortgage interest and the personal-interest disallowance.
- Thomson Reuters — What OBBBA Means for Itemized Deductions — Confirms the One Big Beautiful Bill Act made the $750,000 acquisition-debt limit and home-equity disallowance permanent and restored the mortgage insurance premium deduction for tax years beginning after 2025.
- IRS Publication 530 — Tax Information for Homeowners — How mortgage interest, real estate taxes, points, and mortgage insurance fit together for homeowners, including the Homeowner Assistance Fund and basis rules.