You can deduct mortgage interest on loans up to $750,000 ($375,000 for married filing separately) for homes purchased after December 16, 2017. For homes bought before this date, the limit is $1 million ($500,000 for married filing separately).
The mortgage interest tax deduction lets you subtract qualifying interest payments from your taxable income. This reduces your tax liability. You claim this deduction on Schedule A of Form 1040 when you itemize deductions.
| Type | Limit | Notes |
|---|---|---|
| Primary residence | $750,000 ($1M for pre-2018 loans) | Includes single-family homes, condos, and co-ops |
| Second home | Same as primary residence | Must be used for personal purposes |
| Home equity loans | $750,000 ($1M for pre-2018 loans) | Only if used to buy, build, or substantially improve the home |
Another mistake is assuming all home equity loan interest is deductible. Only interest used for home improvements qualifies. Interest used for other purposes, like paying off credit card debt, doesn't count.
Let's say you bought a home in 2020 for $800,000. Your mortgage interest for the year was $25,000. Since your loan amount is under the $750,000 limit, you can deduct the full $25,000. If you're in the 24% tax bracket, this saves you $6,000 in taxes.
You'll report deductible mortgage interest on Schedule A (Form 1040). Your lender will send you Form 1098, which shows how much interest you paid during the year. Keep this form for your records.
For more details, see the IRS instructions for Schedule A or consult a tax professional. Understanding mortgage interest and tax return rules can help you maximize your deductions.
If you have a home equity line of credit (HELOC), only the interest used for home improvements is deductible. Interest used for other purposes doesn't qualify. The same rule applies to second mortgages.
Rental properties have different rules. You can't deduct mortgage interest for rental properties on Schedule A. Instead, you report it as an expense on Schedule E.