You can deduct home mortgage interest under specific conditions, primarily if you itemize deductions on Schedule A (Form 1040) and the loan is secured by a qualified home (main home or second home) in which you have an ownership interest. Both you and the lender must intend for the loan to be repaid.
Eligible Mortgage Interest
- Home mortgage interest: Any interest paid on a loan secured by your home, including mortgages to buy, build, or substantially improve your home, or second mortgages.
- Late payment charges: You may deduct a late payment charge as mortgage interest if it was not for a specific service related to your mortgage loan.
- Prepaid interest: If you pay interest in advance for a period beyond the end of the tax year, you must spread the deduction over the tax years to which it applies. However, points (discussed below) are an exception.
- Points: Points paid to obtain a mortgage may be deductible, but generally must be amortized over the life of the loan. You can deduct them in full in the year paid only under certain conditions (e.g., if the loan is used to buy, build, or substantially improve your home).
Deduction Limits
The amount you can deduct depends on when the mortgage was taken out and the total debt amount:
- Mortgages taken out after December 15, 2017: You can deduct interest on up to $750,000 of debt ($375,000 if married filing separately) used to buy, build, or substantially improve your home.
- Mortgages taken out before December 16, 2017: Higher limits apply—up to $1 million ($500,000 if married filing separately)—if the debt was used for home acquisition (buying, building, or improving your home).
- Grandfathered debt (before October 13, 1987): No limit applies to interest on these loans.
Special Situations
- Sale of home: You can deduct mortgage interest paid up to, but not including, the date of sale.
- Mortgage ending early: If you spread point deductions over the loan term and the mortgage ends early (e.g., refinancing, prepayment), you can deduct any remaining balance in the year it ends. However, if you refinance with the same lender, you must deduct remaining points over the new loan’s term.
- Tenant-stockholders in cooperatives: You may deduct your share of interest paid by the cooperative on debt used to buy, build, improve, or maintain housing or land. Your share is calculated based on your stock ownership percentage.
Reporting and Documentation
You must report deductible mortgage interest on Schedule A (Form 1040). If you paid $600 or more in mortgage interest during the year on any one mortgage, you will typically receive Form 1098 from your lender by January 31 of the following year. This form includes details such as total interest paid, mortgage insurance premiums, and points (if applicable). However, you must verify that only deductible points are claimed and adjust for any non-deductible amounts.
Source:
Publication 936 (2025)
Disclaimer: Always verify details with current IRS forms and instructions or consult a tax professional for personalized advice. Tax rules may vary based on individual circumstances and state regulations.