Mortgage Deduction Limit

The mortgage deduction is a tax benefit that allows homeowners to deduct interest paid on their home loan from their federal income taxes. The deduction is available to homeowners who itemize their deductions on their tax returns rather than taking the standard deduction. The mortgage deduction can be used to purchase a primary residence, a second home, or rental property. The mortgage deduction is limited to the amount of debt incurred on these properties, and homeowners may also be able to deduct other expenses related to homeownership, such as mortgage points and property taxes.

Before 2021, the mortgage deduction was limited to $1 million, but the Tax Cuts and Jobs Act reduced that limit to $750,000 in 2025. The limit applies to both new and existing mortgages, including those on second homes and rental properties. Homeowners may be able to refinance mortgage debts that existed on December 14, 2017, up to the limit of $750,000, as long as the new loan does not exceed the remaining balance of the original mortgage.

While the mortgage deduction is a valuable tax benefit, it is not available to everyone. It is only beneficial to those who can claim it as part of their itemized deductions, and those who can benefit from it are typically higher-income households. In fact, the mortgage deduction costs the federal government about $60 billion a year in lost revenue, and it appears to do little to promote homeownership among lower-income households.

How to Qualify for Mortgage Deduction?

To qualify for the mortgage deduction, borrowers must meet certain requirements. First, the property must be the borrower’s primary residence. This includes houses, co-ops, condominiums, mobile homes, and houseboats. It must also have basic living accommodations like sleeping, cooking, and bathroom facilities. Mortgages can be used to buy these properties and refinance or pay off an existing home loan. Borrowers can also use the mortgage deduction to pay for things such as mortgage insurance premiums and points, which are upfront fees paid to reduce a mortgage’s interest rate.

In addition to mortgage debt, homeowners can also deduct the interest paid on home equity loans or lines of credit. However, this is only if the borrowed funds are used to buy, build, or improve the borrower’s home that secures the loan. Interest on home equity loans or lines of credit used for other purposes, such as paying off credit card debt, is not deductible.

To claim the mortgage interest deduction, you must itemize your deductions on Schedule A of Form 1040. Calculating your deduction is simple: just divide the maximum mortgage debt limit by your remaining mortgage balance and multiply by the amount of interest you paid during the year. However, if your loan is complicated or you are concerned about potential mistakes, you may want to consult with a tax professional.