Mortgage interest deductions: How they work

Written by Samantha SheltonNMLS 1647301Updated October 2026

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Deduction limits, standard deduction amounts, and bracket thresholds change, and how they apply depends on your income, filing status, and loan. Consult a qualified tax professional about your situation.

Homeowner organizing tax records at her desk to claim the mortgage interest deduction on her federal return

The mortgage interest deduction lets you subtract the interest you pay on a qualified home loan from your taxable income, and it applies to interest on up to $750,000 of home acquisition debt for loans taken out after December 15, 2017, or up to $1 million for debt you incurred on or before that date. The catch is the gate in front of it: you can only claim it if you itemize on Schedule A instead of taking the standard deduction.

That gate is where most homeowners stop. The standard deduction for 2026 is $32,200 for married couples filing jointly and $16,100 for single filers, so your mortgage interest plus your state and local taxes, charitable gifts and qualifying medical expenses all have to clear that number before the deduction returns a single dollar. Plenty of perfectly ordinary mortgages never get there.

Learn how mortgage interest deductions work, including who qualifies, what the debt limits cap, how to run the itemizing math, and which mistakes cost homeowners money. If you’re mapping the wider costs of owning, start with our Homeownership guide.

Key takeaways:

The cap depends on when you borrowed: Interest is deductible on up to $750,000 of home acquisition debt incurred after December 15, 2017, and up to $1 million for debt incurred on or before that date.
You have to clear the standard deduction first: For 2026 that’s $32,200 married filing jointly and $16,100 single, and only the amount your itemized total exceeds it changes what you owe.
It cuts income, not tax: A couple in the 22% bracket whose itemized deductions beat the standard deduction by $8,800 saves roughly $1,936 about 22 cents per extra deducted dollar, not a dollar for a dollar.

Who can deduct mortgage interest?

You have to itemize. The mortgage interest deduction is an itemized deduction reported on Schedule A of Form 1040, and you choose between itemizing and taking the standard deduction, never both. If the standard deduction is larger, your mortgage interest does nothing for your federal return that year.

Past that gate, four conditions have to hold:

The loan is secured by a qualified home: The debt has to be secured by your main home or one second home, and you have to be legally liable for it. An unsecured personal loan spent on the same house doesn’t qualify.
The money bought, built or substantially improved that home: This is the use test the IRS applies to home acquisition debt, and it also decides whether a home equity loan or line of credit qualifies.
A second home counts, with a use rule: You can deduct interest on a main home and one second home. If you rent the second home out, you have to use it yourself more than 14 days or more than 10% of the days it was rented at a fair rental price, whichever is longer.
A pure rental follows different rules: Mortgage interest on a property you rent out is a rental business expense reported on Schedule E, which means you can claim it whether or not you itemize.

That last distinction trips up owners of duplexes and lake places: the deduction described here is personal, while the rental version is a business expense with its own form. Our Taxes & Money hub covers the homeowner tax questions next to this one.

Should you itemize or take the standard deduction?

Run the addition before you assume the answer. For 2026 the standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers and those married filing separately, and $24,150 for heads of household. On the 2025 returns most people just filed, the figures were $31,500, $15,750 and $23,625.

Itemizing wins only when these Schedule A categories add up to more than that:

Home mortgage interest and points: The interest reported to you on Form 1098, entered on Schedule A line 8a.
State and local taxes: Property taxes plus state income or sales taxes, capped at $40,000 ($20,000 married filing separately) for 2025 and $40,400 ($20,200 married filing separately) for 2026. That cap shrinks by 30% of modified adjusted gross income above $500,000 for 2025 ($505,000 for 2026) but never drops below $10,000.
Charitable contributions: Gifts to qualified organizations, subject to their own percentage limits.
Medical and dental expenses: Only the portion above 7.5% of your adjusted gross income, a high bar in a normal year.

Here’s the arithmetic on two Waterford households, both married filing jointly in 2026.¹ The first pays $17,400 in mortgage interest, $8,600 in property and state income tax, and gives $2,400 to charity. That’s $28,400, $3,800 short of the $32,200 standard deduction. They take the standard deduction, and their mortgage interest is worth nothing on the return.

The second carries a larger, newer loan: $27,000 in interest, $11,200 in state and local taxes, $2,800 in charitable gifts. That’s $41,000, or $8,800 more than the standard deduction. In the 22% bracket, which for 2026 starts above $100,800 of taxable income for joint filers, that $8,800 saves about $1,936.

Notice what they did not save: 22% of all $27,000 of interest. Only the excess over the standard deduction does any work, because $32,200 was theirs for free. Since property taxes are the other big Schedule A line, it pays to understand how property tax assessments work before you estimate your total.

How much mortgage interest can you deduct?

The limit isn’t on the interest. It’s on the debt the interest is paid on, and the ceiling depends on the date you took the loan out. Debt incurred after December 15, 2017 is capped at $750,000; older debt is grandfathered at $1 million.

Type of debt	Deductible on debt up to	Married filing separately	Condition
Home acquisition debt incurred after December 15, 2017	$750,000	$375,000	Used to buy, build or substantially improve the home securing the loan.
Home acquisition debt incurred on or before December 15, 2017	$1,000,000	$500,000	Grandfathered at the older, higher limit.
Home equity loan or HELOC	Counts against the limits above	Counts against the limits above	Deductible only if the funds bought, built or substantially improved the home securing the loan.
Main home plus one second home	Combined, not per property	Combined, not per property	One limit covers both homes together.

Two things there matter more than the numbers. First, the limits are combined across your main home and second home, not applied to each separately. Second, the $750,000 cap was originally temporary and scheduled to lapse after 2025; Section 70108 of Public Law 119-21, enacted July 4, 2025, made it permanent. It no longer sits on an expiration date.

The home equity row is the one that catches people. A HELOC used to gut a kitchen produces deductible interest. The same HELOC used to consolidate credit cards, buy a car or pay tuition does not, even though your house secures it either way. Read the pros and cons of home equity loans with that in mind, and keep receipts showing where the proceeds went.

A separate limit reaches a very small group of high-income filers through the alternative minimum tax, which allows a narrower category of housing interest than Schedule A does.²

What counts as deductible mortgage interest?

More than the interest line on your statement, though that line is the bulk of it. Your servicer does most of the sorting on Form 1098, which you’ll generally receive if you paid $600 or more of mortgage interest on any one mortgage during the year.

Interest on the loan itself: The biggest number, and front-loaded. As the CFPB explains, early in the term your balance is high, so most of your monthly payment goes to interest. That’s why the deduction is worth most in a loan’s early years.
Points: Points paid to lower your rate on a main home purchase can be fully deductible in the year paid when a list of IRS conditions is met. Otherwise you deduct them ratably over the life of the loan, so a refinance from years ago may still be feeding you a small deduction today.
Prepayment penalties and late charges: Generally treated as home mortgage interest when they aren’t payment for a specific service your servicer performed.
Mortgage insurance premiums: Treatment just changed. IRS Publication 936 for 2025 states that the itemized deduction for mortgage insurance premiums has expired and can no longer be claimed. Public Law 119-21 restored qualified mortgage insurance premiums as deductible qualified residence interest for tax years beginning after December 31, 2025, so 2026 is the first year it’s back, and the 2026 Form 1098 instructions direct servicers to report premiums of $600 or more in box 5.

Because that change lands on the return you’ll file in 2027 rather than the one you just filed, it’s easy to miss. Our roundup of the impact of new tax laws on homeownership tracks which changes take effect in which year.

How to claim the mortgage interest deduction

Four steps, and the third one decides whether the first two mattered.

Collect every Form 1098: One per mortgage, and you may have two for a single house if your loan was sold or your servicing transferred mid-year. Missing the second understates your interest.
Total the rest of Schedule A: Add state and local taxes within the cap, charitable gifts, and medical expenses above the 7.5% floor to your mortgage interest and points.
Compare that total to your standard deduction: $32,200 joint, $16,100 single for 2026. If your itemized total is smaller, stop, take the standard deduction and keep the paperwork anyway.
File Schedule A with your return: Interest reported on Form 1098 goes on line 8a; interest not reported on a 1098, such as seller-financed debt, goes on its own line with the payee’s information.

Keep one distinction straight: a deduction reduces the income you’re taxed on, while a credit reduces the tax itself, dollar for dollar. A homeowner with a qualified Mortgage Credit Certificate claims an annual credit on Form 8396 rather than a deduction. For the credit side of homeownership, see first-time home buyer tax credits, and talk with a tax professional about how the pieces fit your return.³

Three mistakes that cost homeowners money

Three errors account for most of the money left on the table, and records you already have prevent all three.

Assuming instead of adding: Some homeowners itemize out of habit when the standard deduction is larger; others skip the comparison and lose a legitimate deduction. Run both totals every year, because the standard deduction moves with inflation and your interest falls as the loan amortizes.
Deducting equity-loan interest spent elsewhere: HELOC interest is deductible only when the proceeds bought, built or substantially improved the home securing the loan. Consolidating debt or paying tuition makes it nondeductible, and Form 1098 won’t make the distinction for you.
Losing the paperwork that proves the use: Contractor invoices, permits and bank records substantiate a substantial-improvement claim. They also feed your home’s cost basis, which matters when you sell, see capital gains tax exemptions for how basis affects the gain you report.

What Michigan homeowners should know

The mortgage interest deduction is a federal deduction claimed on Schedule A. Michigan’s relief for homeowners runs through the property tax system instead, on a flat state income tax rate of 4.25% for both 2025 and 2026.

The Principal Residence Exemption removes up to 18 mills: A PRE exempts your principal residence from the tax levied by your local school district for school operating purposes, up to 18 mills. You claim it by filing Form 2368 with the assessor for the city or township where the property sits, see Michigan’s principal residence exemption guidance for the details.
Two deadlines, and they buy different things: An affidavit filed on or before June 1 gets you the exemption on that year’s summer and winter levies. File after June 1 but on or before November 1 and you get the winter levy only. Buyers who close in spring and forget the form pay a full year of school operating tax they didn’t owe.
The Homestead Property Tax Credit is income-tested: For 2025, Michigan capped the credit at $1,900 for most claimants, with eligibility limited to total household resources of $71,500 or less and, for homeowners, a taxable value of $165,400 or less. It’s claimed on Form MI-1040CR and can produce a refund even if you owe no state tax.

Both sit outside your federal return, and both are worth checking the year you buy. Our homestead exemption filing guide walks through the paperwork and the timing.

How Align handles Michigan property taxes

The year after a Michigan home sells, its taxable value resets to half of the assessor's market value, so the seller's tax bill is not your tax bill. Samantha quotes the number you will pay, and she quotes it on the high side on purpose.

Veterans may owe far less. Michigan's Disabled Veterans Exemption removes property taxes on the home a qualifying disabled veteran lives in, and Samantha points eligible buyers to it.

See the Michigan uncapping study

Sources: Michigan Treasury, transfer of ownership and uncapping; Michigan Treasury, Disabled Veterans Exemption (MCL 211.7b).

FAQ: Mortgage interest deductions

Here are answers to common questions about mortgage interest deductions.

Can I claim the mortgage interest deduction if I take the standard deduction?

No. The mortgage interest deduction is an itemized deduction claimed on Schedule A, and you take either the standard deduction or your itemized deductions, never both. Add up your mortgage interest, your state and local taxes up to the cap, charitable gifts and medical expenses above the 7.5% floor. If that total beats the standard deduction, itemize; if not, take the standard. Our Taxes & Money hub covers the rest of the homeowner tax picture.

Is interest on a home equity loan or HELOC deductible?

Only when the borrowed funds were used to buy, build or substantially improve the home that secures the loan, and only within the same overall debt limits. Using a HELOC to consolidate credit cards or pay tuition makes that interest nondeductible even though your house is the collateral. Keep records showing how the proceeds were spent, and weigh the trade-offs in home equity loans: pros and cons.

How much does the mortgage interest deduction actually save?

Your marginal tax rate times the deductible interest, and only on the amount by which your itemized total exceeds the standard deduction. A household in the 22% bracket that itemizes $5,000 more than the standard deduction saves about $1,100. That’s why the deduction matters most in the early years of a large loan, when interest makes up the bulk of each payment, and why recent changes matter, as our guide to the impact of new tax laws on homeownership explains.

Does the mortgage interest deduction apply to a second home?

Yes. You can deduct interest on a main home and one second home, with the $750,000 or $1 million limit applying to the combined debt rather than to each property. A home you rent out follows different rules: mortgage interest there is a rental business expense reported on Schedule E, not an itemized personal deduction. Mixed-use vacation homes require allocating expenses between personal and rental days, and the sale rules differ too, see capital gains tax exemptions.

The bottom line on mortgage interest deductions

The mortgage interest deduction covers interest on up to $750,000 of home acquisition debt incurred after December 15, 2017, or up to $1 million for debt incurred on or before that date, and both limits are now permanent. But it only pays if you itemize on Schedule A, which means your mortgage interest, state and local taxes, charitable gifts and qualifying medical expenses have to clear a standard deduction of $32,200 joint or $16,100 single in 2026. Only the excess counts, and it cuts taxable income rather than tax, roughly 22 cents on the dollar in the 22% bracket.

If you’re ready to see what a loan would really cost you in interest, talk to Align Lending. We’ll shop your scenario across our lender network and put competing quotes in front of you side by side. Call 248-506-5727 or start online.

Footnotes:

1. Example figures in this article are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your interest, deductions and tax savings depend on your loan amount, rate, filing status, income, and the other items on your return. Return to text.

2. For alternative minimum tax purposes, only qualified housing interest on a principal residence or a qualified dwelling is allowed, so some Schedule A mortgage interest is added back on Form 6251. Very few filers are affected: for 2026 the AMT exemption is $90,100 for unmarried individuals and $140,200 for married couples filing jointly, and the exemption begins phasing out above $500,000 and $1,000,000 of alternative minimum taxable income respectively. Return to text.

3. This is general information, not tax advice. Whether the mortgage interest deduction helps you, and by how much, depends on your filing status, income, loan history and the rest of your return. Consult a qualified tax professional about your situation. Return to text.

Sources: home acquisition debt limits of $750,000 ($375,000 married filing separately) for debt incurred after December 15, 2017 and $1 million ($500,000 married filing separately) for debt incurred on or before that date; the requirement to itemize on Schedule A; the buy, build or substantially improve test for home equity loans and lines of credit; the main-home-plus-one-second-home rule and the 14-day or 10%-of-days rental use test; the $600 Form 1098 threshold; and the rules for deducting points in full or ratably over the loan term, IRS Publication 936 on home mortgage interest (2025). Mortgage interest and points reported on Form 1098 entered on Schedule A line 8a; the state and local tax limit of $40,000 ($20,000 married filing separately), reduced by 30% of modified adjusted gross income above $500,000 ($250,000 married filing separately) but not below $10,000; and the 7.5%-of-adjusted-gross-income floor for medical and dental expenses, IRS Instructions for Schedule A (Form 1040) (2025). State and local tax limitation of $40,400 and threshold of $505,000 for taxable years beginning in 2026, 26 U.S.C. § 164(b)(6). Expiration of the itemized deduction for mortgage insurance premiums for 2025, and the deductibility of home mortgage interest and certain real estate taxes among settlement costs, IRS Publication 936 (2025) and IRS Publication 530 (2025). Mortgage Credit Certificate credit claimed on Form 8396, IRS Publication 530 (2025). Reporting of qualified mortgage insurance premiums of $600 or more in box 5 where section 163(h)(3)(E) applies for the reporting year, IRS Instructions for Form 1098 (12/2026). Standard deduction amounts of $15,750 single and married filing separately, $31,500 married filing jointly, and $23,625 head of household for 2025, Internal Revenue Service. Standard deduction amounts of $16,100, $32,200 and $24,150 and the 22% bracket beginning above $50,400 single and $100,800 married filing jointly for 2026, IRS Revenue Procedure 2025-32. Permanence of the $750,000 qualified residence interest limitation and treatment of qualified mortgage insurance premiums as qualified residence interest for taxable years beginning after December 31, 2025, Section 70108 of Public Law 119-21, enacted July 4, 2025. Mortgage interest on rental property deducted as a rental expense on Schedule E, IRS Publication 527 (2025). Alternative minimum tax exemption amounts of $90,100 and $140,200 and phase-out threshold amounts of $500,000 and $1,000,000 for taxable years beginning in 2026, IRS Revenue Procedure 2025-32. Amortization of mortgage payments toward interest and principal, Consumer Financial Protection Bureau. Principal Residence Exemption of up to 18 mills of local school district operating tax, Form 2368, and the June 1 and November 1 filing deadlines, Michigan Department of Treasury. Homestead Property Tax Credit maximum of $1,900, total household resources limit of $71,500 and taxable value limit of $165,400 for 2025, Michigan Department of Treasury. Michigan individual income tax rate of 4.25% for the 2025 and 2026 tax years, Michigan Department of Treasury.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Deduction limits, standard deduction amounts, tax brackets, state credits and exemption rules change and depend on your individual circumstances; confirm current figures with the IRS and the Michigan Department of Treasury and consult a qualified tax professional about your situation. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.