What Is Mortgage Interest Deduction? Everything You Need to Know

Find out more about the mortgage interest tax deduction.

Many homeowners have to take out mortgage loans and pay the interest that comes along with them, but fortunately, the interest you pay is generally tax deductible. You can deduct mortgage interest if you file itemized deductions on your tax return form and if the mortgage is for a property for which you have ownership interest.

Keep reading to find out more about mortgage interest deductions, and how homeowners can benefit from this tax break.

What Mortgage Interest Is Deductible?

All of your mortgage interest is deductible if it meets any of the following criteria:

  • The mortgage was taken out on or before Oct. 13, 1987
  • The mortgage was taken out after Oct. 13, 1987, and was used to buy, build or improve your home
  • The mortgage was taken out after Oct. 13, 1987, as home equity debt, but isn’t home acquisition debt

Learn: Best and Worst Ways to Itemize Deductions

What Is the Mortgage Interest Deduction Limit?

For homes purchased prior to 2018, you could deduct interest on up to $1 million of mortgage debt for joint filers, or $500,000 for married filing separate status. For homes purchased in 2018, under the Tax Cuts and Jobs Act, you can deduct interest on up to $750,000 of mortgage debt, or $375,000 for married filing separate status.

You can also deduct interest on up to $100,000 of home equity debt, or $50,000 for those who use married filing separate status, but this provision has been limited under the TCJA. Under the new law, interest on a home equity loan, home equity line of credit (HELOC) or second mortgage is still deductible if it is used to buy, build or substantially improve a home. It is not deductible if the loan is used for personal expenses, such as credit card debt.

What Properties Qualify for Mortgage Interest Deduction?

A primary or second home qualifies for mortgage interest deduction — so if you have additional properties they would not be eligible except under special circumstances. The IRS defines a “qualified home” as any house, condominium, cooperative, mobile home, house trailer, boat or similar property that has sleeping, cooking and toilet facilities.

How Does the Mortgage Interest Deduction Affect Homeowners?

Most homeowners — except those with mortgage debt that exceeds $750,000 — save money thanks to the mortgage interest deduction. To understand how it works, take a look at this mortgage interest deduction example: If you purchase a $200,000 home with a 20 percent down payment and take out a 30-year, fixed-rate loan with a 5 percent interest rate, you’ll save an average of $2,798 in taxes each year, according to Allstate’s mortgage tax credit calculator.

Can I Benefit From the Mortgage Interest Deduction?

If you are a joint filer whose mortgage debt is less than $750,000, or if you are married filing separate and have a mortgage debt less than $375,000, you can benefit from the mortgage interest deduction, so be sure to include it in your tax forms.

Click through to read about the ways the Trump tax plan affects the mortgage interest deduction.

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