Mortgage interest is one of the largest deductions available to homeowners — but the rules have gotten more restrictive since 2018, and the amount you can actually deduct depends on when you bought your home, how much you borrowed, and what you used the money for. Here’s exactly how the deduction works in 2025 and how to calculate your real number.
The Basics: What Mortgage Interest Is Deductible?
You can deduct interest on a mortgage that is secured by your primary home or a second home, provided the loan was used to buy, build, or substantially improve the property. This applies to:
- Your main home purchase mortgage
- A mortgage on a second home (vacation home, cabin, etc.)
- A home equity loan or HELOC used for home improvement
- Construction loans while your home is being built
Interest on a home equity loan or line of credit used for other purposes — paying off credit cards, buying a car, funding a vacation — is not deductible since the 2017 Tax Cuts and Jobs Act. The loan proceeds must have been used to buy, build, or substantially improve a qualified home.
The Loan Limit: $750,000 for Most Buyers
This is where many homeowners are surprised. The IRS only allows you to deduct interest on up to $750,000 of mortgage debt (for loans taken out after December 15, 2017). If your total mortgage balance exceeds $750,000, you can only deduct a proportional share of the interest.
If you have two homes with mortgages, the $750,000 limit applies to the combined total of both loans.
Grandfathered Loans: The $1 Million Limit
If your mortgage was originated on or before December 15, 2017, the old $1,000,000 limit applies. Refinancing a pre-2017 loan generally preserves the $1 million limit — as long as the new loan amount doesn’t exceed the outstanding balance of the original loan at the time of refinancing.
How to Calculate Your Deductible Interest If You’re Over the Limit
If your mortgage balance exceeds $750,000, you calculate your deductible portion like this:
Deductible interest = Total interest paid × ($750,000 ÷ Average loan balance)
Example: Your average mortgage balance for 2025 was $900,000 and you paid $36,000 in interest. Your deductible share is $36,000 × ($750,000 ÷ $900,000) = $36,000 × 0.833 = $30,000. The remaining $6,000 is not deductible.
Where to Find Your Mortgage Interest: Form 1098
Your lender is required to send you a Form 1098 (Mortgage Interest Statement) by January 31st each year if you paid $600 or more in mortgage interest. Box 1 shows your deductible mortgage interest. Box 10 shows your real estate taxes paid through escrow (also potentially deductible, subject to the SALT cap).
If you have multiple mortgages or a HELOC, you’ll receive a separate Form 1098 for each. Add them together, then apply the loan limit calculation if your total debt exceeds $750,000.
You Must Itemize — The Standard Deduction Hurdle
Mortgage interest is only deductible if you itemize deductions on Schedule A. You cannot claim it alongside the standard deduction. For 2025, the standard deduction is $15,000 for single filers and $30,000 for married filing jointly.
That means if your total itemized deductions — mortgage interest, property taxes (up to $10,000 SALT cap), charitable contributions, and qualifying medical expenses — don’t exceed your standard deduction, you’re better off taking the standard deduction and the mortgage interest deduction provides no additional benefit.
This is why many homeowners with smaller mortgages, lower interest rates, or fewer other deductions end up not benefiting from the mortgage interest deduction at all — the standard deduction already exceeds their total itemized deductions.
The SALT Cap Interaction
State and local taxes (SALT) — which includes property taxes — are capped at $10,000 per year on federal returns (through 2025, under current law). This limit affects the calculus for itemizing. Even if your mortgage interest alone is $18,000 and your property taxes are $12,000, you can only claim $10,000 of the property taxes. Your total itemized deduction for those two items is $28,000 — just below the $30,000 married filing jointly standard deduction.
Points Paid at Closing: A One-Time Extra Deduction
If you paid discount points when you took out your mortgage — prepaid interest to buy down your interest rate — those points are generally deductible in the year paid (for a home purchase) or amortized over the life of the loan (for a refinance). Check Box 6 of your Form 1098 for points reported by your lender.
Second Homes and Rental Properties: Different Rules
Second home: Interest on a second home mortgage is deductible under the same rules as your primary mortgage, subject to the combined $750,000 limit across both properties. The home must be a qualified residence — meaning you use it for personal purposes at least 14 days per year or 10% of the days it’s rented out, whichever is greater.
Rental property: Mortgage interest on a rental property is not deducted on Schedule A as a personal deduction. Instead, it’s deducted as a business expense on Schedule E (Supplemental Income and Loss), with no dollar cap. This is a completely separate deduction and is generally more favorable — but it requires reporting rental income.
Should You Refinance? The Tax Implication
Refinancing can affect your mortgage interest deduction in a few ways. If you refinance to a lower rate, you’ll pay less interest — meaning a smaller deduction. If you do a cash-out refinance and use the additional funds for home improvement, the interest on the additional amount remains deductible. If you use cash-out proceeds for other purposes, that portion of interest is not deductible.
How Much Does This Actually Save You?
The tax savings from a mortgage interest deduction depends entirely on your marginal tax bracket and whether the deduction actually pushes your itemized total above the standard deduction threshold.
A homeowner in the 22% bracket who itemizes $35,000 in deductions (vs. a $30,000 standard deduction) is only getting a tax benefit on the $5,000 difference — not the full $35,000. The marginal benefit of each extra dollar of deduction is $0.22 in tax savings.
If you’re trying to figure out whether itemizing makes sense and how your mortgage interest fits into the picture, the home deductions guide covers the full calculation — including property taxes, mortgage interest, and home office — in one place.
Key Takeaways for 2025
- Deductible on up to $750,000 of mortgage debt (loans after Dec 15, 2017)
- Old loans (before Dec 16, 2017) use the $1 million limit
- HELOC interest only deductible if used for home improvement
- Must itemize — standard deduction is $15,000 (single) / $30,000 (MFJ) in 2025
- Your Form 1098 has everything you need — Box 1 is your deductible interest
- Rental property mortgage interest goes on Schedule E, not Schedule A