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What Is the Mortgage Interest Deduction? Why should you care?

The home mortgage interest deduction is a popular deduction within the US tax code.

So, if you own a home, you can take advantage of the mortgage interest deduction to lower your tax bill.




The IRS describes the home mortgage interest as any interest you pay on a loan secured by your

home (main home or a second home). The loan can be a mortgage to buy your home or a second

mortgage. However, there are some conditions that must be met in order for you to be eligible for the

home mortgage interest deduction, such as-

  • You must file Form 1040 or 1040-SR and itemize deductions on Schedule A.

  • You must ensure that mortgage is a secured debt on a qualified home in which you have an ownership interest


If you itemize deductions on Schedule A, then you can deduct qualified mortgage interest paid on a

qualifying residence including your main home, or second home. Moreover, you must be legally

responsible for repaying the loan to deduct the mortgage interest.


According to the IRS, you can deduct all or most of your home mortgage interest. How much you can

deduct generally depends on the date of the mortgage, the amount of the mortgage, and how you use

the mortgage proceeds.


You can fully deduct the home mortgage interest you pay on acquisition debt if your mortgages fit into

the following categories:


  • Any Grandfathered debt or mortgage you took out on or before October 13, 1987 

  • Mortgage your or your spouse took out after October 13, 1987, but before December 16, 2017, to buy/build/improve your primary/second home as long as throughout 2021 these mortgages plus any grandfathered debt totaled $1 million or less.

  • Mortgages you (or your spouse if married filing a joint return) took after December 15, 2017, to buy/build/improve your primary and/or second home but only if throughout 2021 these mortgages plus any grandfathered debt totaled $750,000 or less.


These limits are halved if you’re married filing separately.


Post the year 2017, you can’t deduct the interest you pay on home equity loans or home equity l if the debt is used for something other than home improvements. This includes things like using it to pay for college tuition or to pay down credit card debt.


Moreover, it is important to remember that you cannot deduct mortgage interest along with the standard deduction. In order to claim the mortgage interest deduction, you’ll need to itemize your expenses.


However, itemizing your expenses is the right choice if your itemized deductions total more than the standard deduction. Whatever tax savings you get from itemizing your mortgage interest are an outcome of not only the mortgage interest you pay, but also of your mortgage insurance, property taxes, charitable donations, state income tax or sales tax, and anything else you may itemize. 


The more your itemized deductions surpass the standard deduction and the higher your marginal tax rate, the more you can save. In fact, the mortgage interest tax deduction primarily benefits taxpayers who earn more than $200,000, since these households are more likely to itemize and to have large mortgages with lots of interest. They also have higher marginal tax rates that make deductions more valuable.


Low-earning taxpayers tend to get less tax benefits.


So, if you wish to claim the mortgage deduction, you can do so by filing Schedule A of Form 1040. The mortgage interest tax deduction can significantly reduce your financial burden, especially if you have a high income and a large mortgage. But keep in mind, that the deduction is not a valid reason to get a mortgage or to keep a mortgage you’re ready to pay off. It’s also not a reasonable option to stretch your homebuying budget.

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