The Mortgage Interest Deduction: Your Guide For The 2024 Tax Year

There isn’t much about taxes that gets people excited – except maybe the topic of deductions. Tax deductions are qualifying expenses you can subtract from your taxable income, lowering the amount you owe in taxes.

For homeowners with a mortgage, the mortgage interest deduction is one of several homeowner tax deductions provided by the Internal Revenue Service (IRS). Learn more about this valuable deduction and how to claim it on your taxes this year.

What Is The Mortgage Interest Deduction?

The mortgage interest deduction is a tax incentive for homeowners. This itemized deduction allows homeowners to subtract mortgage interest from their taxable income, lowering the amount of taxes they owe. Homeowners can also claim the deduction on loans for second homes providing that they stay within IRS limits.

Mortgage Interest Tax Deduction Limit: How Much Can I Deduct?

The Tax Cuts and Jobs Act (TCJA) of 2017 changed individual income tax by lowering the mortgage deduction limit and limiting how much you can deduct from your taxable income.

Before the TCJA, the mortgage interest deduction limit was on loans up to $1 million. Now, the loan limit is $750,000. For the 2024 tax year, married couples filing jointly, single filers and heads of households can deduct up to $750,000. Married taxpayers filing separately can deduct up to $375,000 each.

How To Claim The Home Mortgage Interest Deduction On Your 2024 Tax Return

Tax forms can help walk you through your filing step by step. To make sure you’re filing the right form, follow these steps to deduct mortgage interest on your 2024 taxes.

1. Choose A Standard Deduction Or An Itemized Deduction

If you choose the standard deduction, you won’t need to complete more forms and provide proof for all your deductions. It’s more of a “no questions asked” deduction, with a flat dollar amount that’s the same for most taxpayers. For the 2023 tax year, which will be the relevant year for April 2024 tax payments, the standard deduction is:

• $14,600 for single filers
• $29,200 for married couples filing jointly
• $14,600 for married couples filing separately
• $21,900 for heads of households

If you choose an itemized deduction, you can pick and choose from various deductions, including student loan interest, charitable contributions, medical expenses and more. To itemize your deductions, you must fill out additional forms to list each deduction. Be prepared to submit records, receipts and other documents that validate them.

Both standard and itemized deductions reduce your taxable income.

2. Get Your 1098 From Your Lender Or Mortgage Servicer

To fill out the information about the mortgage interest you paid during the tax year, you’ll need a Form 1098 from your mortgage lender or mortgage servicer (the company you make your mortgage payments to). Form 1098 details how much you paid in mortgage interest and points during the past year. It’s the proof you’ll need for your mortgage interest deduction.

Your lender or mortgage servicer will send the form at the beginning of the year your taxes are due. If you don’t receive it by mid-February or need help understanding your form, contact your lender.

3. Choose The Correct Tax Forms

You’ll need to itemize your deductions to claim the mortgage interest deduction. Since mortgage interest is an itemized deduction, you’ll use Schedule A (Form 1040), an itemized tax form, and the standard 1040 form.

Schedule A lists other deductions, including medical and dental expenses, taxes you paid and donations to charity. Go to the mortgage interest deduction part on line 8 and fill in the mortgage interest information from your 1098.

If you make money from the home – whether as a rental property or you use it for your business – you’ll need to fill out a different form because the way interest is deducted from your taxes depends on how you use the loan, not the loan itself.

You may need to use the following forms depending on your situation:

• Schedule E: If you want to deduct the interest you pay on rental properties, use Schedule E (Form 1040) to report it. The form is used for supplemental income from rental real estate.
  
• Schedule C: If you use part of your house as a home office or use money from your mortgage for business purposes, you may need to fill out Schedule C (Form 1040 or 1040-SR if you’re 65 or older) to report the profit or loss from a business you owned or operated.

You’ll list mortgage interest as an expense on either of these forms. Whatever mortgage interest you’re deducting or form you’re using, it’s important to know what qualifies as interest and what doesn’t. If you’re itemizing your deductions, read on.

Mortgage Interest Deduction Example

So, how should you decide between itemizing or taking the standard deduction? It all comes down to which one saves you more money. If taking the standard deduction saves you more money than itemized deductions, take the standard deduction. If itemizing saves more, itemize your deductions. But you can’t claim both. You must choose one or the other.

Let’s say you’re a single filer and itemize the following deductions: mortgage interest ($8,000), student loan interest ($1,400) and charitable donations ($2,000) for a total of $11,400. You should take the $14,600 standard deduction because an additional $3,200 would be deducted from your taxable income.

Now let’s say your mortgage interest is $12,000, your charitable donations were $2,000 and your student loan interest was $1,600. Your itemized deductions would total $15,600. In this case, taking the itemized deduction would make more sense because it would reduce your taxable income by $700 more than the standard deduction.

If you’re paying someone to prepare your taxes, itemizing your taxes may cost more because itemizing requires more work. You should factor in the cost of tax preparation when deciding which approach will save you the most money.

What Loans Qualify For A Mortgage Interest Deduction?

Many types of home loans qualify for the mortgage interest tax deduction, including home loans to buy, build or improve your home. Home equity loans, home equity lines of credit (HELOCs) and second mortgages may also qualify.

You can also use the mortgage interest deduction after refinancing your home if your home secured the loan, and you used the loan to buy, build or improve the home.

Mortgage Interest For Your Main Home

Your primary residence can be a house, co-op, apartment, condo, mobile home, houseboat or other property. The property won’t qualify for the deduction if it doesn’t have basic living accommodations, including sleeping, cooking and bathroom facilities. And it must be listed as collateral for the loan you’re deducting interest payments from.

You can also use this deduction if you got a mortgage to buy your ex-spouse’s share of a home after a divorce.

Mortgage Interest For A Second Home

You can use this tax deduction on a mortgage for a second home listed as collateral for that mortgage. If you rent out your second home, there’s another caveat. You must live there for more than 14 days or more than 10% of the days you rent it – whichever is longer. If you have more than one second home, you can only deduct interest for one.

Mortgage Interest For A Home Equity Loan

A home equity loan is a lump sum borrowed from equity in a home. For your interest payments to qualify, you must use the money to buy, build or “substantially improve” your home. Your interest payments won’t qualify for the deduction if you use the money for anything else, like buying a car or paying down credit card debt.

What Else Qualifies For The Home Mortgage Interest Deduction?

Other payments you make may count as mortgage interest. Here are several you may consider deducting:

Mortgage Points

When you take out a mortgage, you may have the option to buy mortgage points, which are considered prepaid interest. One point costs 1% of your total loan amount and can take about 0.25% off your mortgage rate. Mortgage points must be paid directly to the lender at closing to qualify for the deduction.

In certain instances, homeowners can deduct points the same tax year they pay them. Otherwise, you deduct them evenly over the life of the loan. If you have questions, you should consult a tax professional.

Late Payment Charges

As long as the charge wasn’t for a service, you can deduct late payment charges as home mortgage interest. However, don’t take your ability to deduct late payment charges as permission to make late payments. They can damage your credit score and bring on a host of other issues.

Prepayment Penalties

Some lenders charge a prepayment penalty if you pay off your mortgage early – and you can deduct it as mortgage interest. The penalty charge must result from paying the loan off early, not for services or additional costs. Rocket Mortgage^® doesn’t charge prepayment penalties.

Interest Paid Before Selling Your Home

If you sell your home, you can still deduct any interest you paid before selling it. If you sold the home in June, you can deduct the interest you paid from January through May or June, depending on when you made your last mortgage payment.

What’s Not Deductible?

Mortgage interest isn’t the only expense you’ll incur when you purchase and own a home. Many homeowners believe some of these other expenses are tax-deductible, but they aren’t. Here’s a list of some expenses people mistakenly assume are tax-deductible:

• Homeowners insurance: Homeowners insurance premiums don’t qualify.
  
• Mortgage insurance premiums: Mortgage insurance premiums, Department of Veterans Affairs (VA) funding fees and S. Department of Agriculture (USDA) guarantee fees no longer qualify as deductible mortgage interest.
  
• Other closing costs: Closing costs, like title fees, legal fees, recording fees, title insurance, agent commissions, home inspection costs and credit check fees don’t qualify.
  
• Moving expenses: Unless you’re an active-duty service member, you can’t deduct moving expenses from your taxes.
  
• Money forfeited while home buying: You can’t claim a deposit, down payment or earnest money you forfeited during the home buying process.
  
• Interest on a reverse mortgage: You can’t get a deduction on a reverse mortgage because you don’t pay interest until you pay off the loan.

Remember, mortgage interest is only deductible if the home you purchased with the loan is the property that serves as collateral for the loan. For example, if you own a rental property and borrow against it to buy a home, the mortgage interest you pay won’t qualify because the home wasn’t the collateral for the loan.

Special Circumstances

Because no two situations are alike, you’ll likely encounter exceptions regarding the mortgage interest deduction. Here are a few examples:

• Co-op owners: If you own a co-op apartment, you can deduct your share of the interest on the building’s total mortgage.
  
• Partial rental: If you rent out part of your home, you can treat the rented portion as part of your living space as long as you use it as a living space, it doesn’t have separate sleeping, cooking and bathroom facilities and you don’t rent to more than two tenants with separate sleeping spaces.
  
• Timeshare: If the home is a timeshare, you can treat it as a home or second home and deduct mortgage interest if it meets the standard requirements.
  
• Home under construction: If the house is under construction, it can still qualify for the deduction for up to 2 years providing that it becomes your qualified home after construction.
  
• Cash for debts or investments: The mortgage interest deduction may be available if you use all or part of your mortgage proceeds for a business or investment.
• Destroyed home: If your house was destroyed, it may still qualify for the mortgage interest deduction if you rebuild it and move back in or sell the land within a reasonable period.
  
• Payments after a divorce or separation: If you and your ex-spouse both own a home you both paid the mortgage, you or your ex-spouse can deduct half the total payments you made. The person who didn’t claim a mortgage interest deduction must include the other half as alimony.

For other special circumstances, check out Publication 936 from the IRS.

Mortgage Interest Deduction FAQs

Because all tax deductions are based on a homeowner’s unique circumstances, you likely have more questions about your mortgage interest deduction options. Read through our answers to some common questions and consult a qualified tax professional before making any decisions.

Are there limits on the mortgage interest deduction?

Under the Tax Cuts and Jobs Act (TCJA) of 2017, the mortgage interest deduction is available for up to $750,000 in mortgage debt if you’re married and filing jointly, single or the head of a household. If you’re married and filing separately, the limit is $375,000.

Why is some mortgage interest not tax deductible?

The deductibility of mortgage interest depends on whether the loan is secured by the mortgaged property. If you want to deduct mortgage interest from a home equity loan or a home equity line of credit (HELOC) but didn’t use the money to buy a home or improve your home, you likely won’t be able to claim the deduction.

What other tax deductions are there for homeowners?

In addition to the mortgage interest deductions, some homeowners may be eligible for property tax, state income tax or capital gains tax deductions.

If you don’t qualify for any tax deductions, tax credits may be another avenue to look into. A mortgage interest credit, for example, allows qualified homeowners to claim a credit on their tax return that’s worth a percentage of the mortgage interest they paid over a given tax year.

Can you deduct mortgage interest after refinancing your home?

You may be able to claim a mortgage interest deduction if you refinanced your primary or secondary residence as long as the money was used to increase the value of the home.

The Bottom Line

Consult your financial advisor or tax professional to get help filing your 2024 tax return. They can provide even more information about the mortgage interest deduction and help you decide what to deduct based on your loan type and your financial situation.

If you want to buy a second home or refinance your existing mortgage, you can start the approval process with Rocket Mortgage. A Home Loan Expert can help you learn more about the tax benefits of refinancing or purchasing real estate.