For many homeowners, tax season can bring more than just paperwork—it can also bring valuable savings. One of the most significant financial perks of owning a home is the mortgage interest deduction, which can help reduce your taxable income and, in turn, your overall tax bill. Whether you're a current homeowner or planning to buy, understanding how this deduction works can lead to smarter financial decisions.
What Is the Mortgage Interest Deduction?
The mortgage interest deduction allows you to deduct the interest paid on a qualifying home loan from your taxable income. This means you may owe less in taxes simply by owning your home. It’s one of several financial advantages of homeownership—especially appealing for those transitioning from renting or evaluating the cost-benefit balance of buying.
Who Is Eligible?
To take advantage of the mortgage interest deduction, you’ll need to itemize deductions on your tax return instead of claiming the standard deduction. Additionally, your mortgage must meet IRS requirements:
- The loan is $750,000 or less (for most taxpayers).
- It must be secured by a primary or secondary residence.
Keep in mind, the decision to itemize depends on multiple factors like local property taxes, HOA fees, and other deductible expenses. For some homeowners, especially those with smaller mortgages or lower property taxes, the standard deduction might offer greater savings.
What Types of Loans Qualify?
The deduction is available for interest on loans used to:
- Buy a home
- Build a home
- Substantially improve a home
This includes first mortgages, refinances, and certain home equity loans—so long as the funds are used for significant renovations. In some cases, construction or land loans may also qualify, especially if tied to active building plans and proper permits.
How Much Can You Deduct?
The amount you can deduct depends on your loan size and interest paid over the year. Your lender will provide this figure on Form 1098, usually issued early in the year. If you’ve refinanced, closed late in the year, or made extra payments, it’s especially important to double-check your numbers. Understanding how this ties in with other home-related costs—like closing costs or title insurance—can give you a clearer picture of your total expenses.
Who Really Benefits?
Since the 2018 tax reform nearly doubled the standard deduction, fewer taxpayers find it beneficial to itemize—now, fewer than 10% of filers do so. This includes many homeowners, particularly:
- First-time buyers with modest mortgage payments
- Owners nearing the end of their loan term
However, households with larger mortgages, high property taxes, or charitable contributions often still benefit from itemizing. Your local tax rates and the value of your home can make a big difference, so it’s worth reviewing your situation each year.
What About a Second Home?
Good news: Interest on a second home mortgage can also qualify for the deduction. The same rules apply as for your primary residence, and the combined mortgage total must stay within the $750,000 cap. Just remember—you’ll still need to itemize deductions and use the second home personally, not solely as a rental.
Selling or Refinancing? Here’s What Changes
If you sell your home, you can typically deduct mortgage interest paid up until the sale date. If you refinance, you can still deduct interest—as long as the new loan is used for qualified purposes, like improving the home or paying off the original mortgage.
However, if you take cash out and use it for unrelated expenses (like paying off credit card debt), the interest on that portion may not be deductible. Be sure to review your new loan terms and keep your 1098 forms from both lenders.
How REALTORS® Are Protecting Your Benefits
The National Association of REALTORS® (NAR) advocates at the federal level to preserve the tax advantages of homeownership, including the mortgage interest deduction. Their policy efforts aim to protect property rights, support strong communities, and promote a healthy housing market.
To explore NAR’s advocacy work and stay informed, visit facts.realtor.
Note: Tax laws can vary by state and local jurisdiction. Always consult a qualified tax professional, real estate agent, or attorney to discuss your unique circumstances.
