Mortgage Interest Deduction: What Homeowners Should Know

Which Mortgage Costs Are Tax Deductible in 2025?

Owning a home can have tax benefits. Specifically, homeowners may be eligible for certain tax deductions, which lower your IRS bill by reducing your taxable income.

Opportunities to deduct both mortgage interest and property tax can make homeownership more affordable, but while some homeowners benefit from this tax savings, unfortunately, the deductions aren't available to everyone.

Here’s an overview of which mortgage costs might be tax-deductible for you in 2025.

What Is the Mortgage Interest Tax Deduction?

When you get a mortgage to pay for a home, your monthly payment includes your principal, interest, and sometimes taxes and insurance costs. The interest portion of your bill may be tax-deductible on up to $750,000 in mortgage debt if you itemize on your taxes and own a qualifying primary or second home, including a house, condo, co-op, boat, or mobile home.

When you claim the mortgage interest tax deduction, this reduces your taxable income. For example, if you had $50,000 in income and paid $8,000 in annual mortgage interest, you could subtract $8,000 from $50,000. You would be taxed on only $42,000 instead of $50,000. If you were in the 22% tax bracket, this would save you $1,760 on your tax bill.

Deduction Limits: How Much Mortgage Interest Can You Deduct?

IRS rules for the 2025 tax year allow eligible homeowners to deduct mortgage interest on up to $750,000 in mortgage debt. If you file your taxes as married filing separately, you can deduct interest on up to $375,000. If you took out your loan before December 15, 2017, you can deduct interest on up to $1 million in debt (or $500,000 if you file as married filing separately).

Your lender will send you a Year-End Statement (Form 1098) at the start of the tax filing season, so you'll know how much interest you paid and can deduct. You can also learn how to access your mortgage interest 1098 form yourself if you don't want to just wait for it to come in the mail.

You can only claim the mortgage interest deduction if you itemize, rather than claiming the standard deduction. The standard deduction is a flat amount set based on filing status, while itemizing involves claiming deductions for specific things (like mortgage interest). A tax professional can help you decide whether to itemize or claim the standard deduction.

The mortgage interest deduction is most valuable early on, since mortgages are structured so that most of your monthly payments go toward interest during the early years of repayment. Your tax deduction gets smaller as your interest costs go down, but the savings is still valuable.

What You Can Deduct

The IRS has some specific rules regarding exactly what mortgage costs you can and can't deduct. Here's what you need to know.

Mortgage Interest on Primary Residences and Second Homes

The IRS allows you to deduct mortgage interest on both primary residences and one second home. You must be legally obligated to pay the debt to be eligible to deduct it. The property can be a condo, house, boat, cooperative, mobile home, or house trailer, but it must have sleeping areas, cooking areas, and toilet facilities.

As mentioned above, you also must itemize, and your deduction is limited to interest on the first $750,000 in debt. You'll subtract the deductible amount from your taxable income so, for example, $10,000 in interest could bring your taxable income from $60,000 to $50,000.

Mortgage Points

Mortgage discount points are sometimes tax-deductible. However, the rules governing the deductibility of mortgage discount points are complex. To better understand these rules, consult your tax professional. For more information, check out this article on the IRS website.

Mortgage Interest on a HELOC or Home Equity Loan

You can deduct mortgage interest you pay on a home equity loan or line of credit only if you use the money to buy, build, or substantially improve the home securing the loan. You're also subject to the $750,000 limit, and that's a combined limit with your HELOC, home equity loan and any other mortgages on the home.

Prepayment Penalties

If you pay off your mortgage early, you may owe prepayment penalties depending on the terms of your loan. Prepayment penalties are treated as deductible mortgage interest provided they meet IRS criteria. The same rules apply when you deduct prepayment penalties as apply to other deductible interest, including itemizing and complying with loan limits.

Late Payment Fees

Late payment fees may be treated as deductible interest by the IRS if the fee was a penalty for being late with a principal and interest payment. If the fee was for a specific service, it isn't deductible.

What You Can't Deduct

While you can deduct certain costs associated with your loan, there are other homeownership expenses that are not tax deductible. Here are some examples of costs you don't get a tax deduction for.

• Mortgage principal payments: You can’t claim a deduction on your taxes for the part of your monthly mortgage bill that goes toward paying down your principal (the original amount you borrowed to pay for the home).
• Homeowners insurance: Lenders require you to buy homeowners insurance to protect your home. The insurance pays for repairs or rebuilding after a covered disaster. Although insurance is mandatory and you may be required to add the premium cost to your monthly mortgage payment, homeowners' insurance premiums are not deductible.
• Mortgage insurance premiums: Some lenders require you to pay for mortgage insurance -- especially if you make a small down payment or qualify for certain loans like FHA Loans. Mortgage insurance protects a lender against loss in case of foreclosure. Unfortunately, mortgage insurance premiums are not tax-deductible as they are not part of your mortgage interest costs.
• Most closing costs: Closing costs are fees paid when you close on a home. Closing costs can include appraisal fees, credit report fees, and lender fees. You are paying for a service when you pay these fees, not mortgage interest, so these costs aren't deductible.
• Reverse mortgage interest: Interest is not deductible on a reverse mortgage until it is paid. This usually happens when a home is sold, or the borrower moves or passes away. The deduction is also subject to the limitations that apply to home equity debt, so is only deductible if the loan was used to buy, build, or substantially improve the home.

Should You Claim the Mortgage Interest Tax Deduction?

When you file your taxes, you need to decide whether to claim the mortgage interest tax deduction, which requires itemizing your taxes, or whether to claim the standard deduction instead.

When Itemizing Makes Sense

Itemizing makes sense if the total combined value of the deductions you qualify for when itemizing adds up to more than the value of the standard deduction.

For example, your mortgage interest, property taxes, charitable giving and medical and dental expenses may be tax deductible under certain circumstances if you itemize. The more you pay in mortgage interest and other deductible expenses, the greater the chances that itemizing will save you more money than the standard deduction.

When the Standard Deduction Makes Sense

Claiming the standard deduction makes sense if this deduction is more than the amount you could deduct if you itemize. In 2025, the standard deduction for married joint filers is $31,500 while the standard deduction for single filers is $15,750. Some seniors can also claim an additional deduction of up to $6,000 per person.

If your itemized deductions, including mortgage interest, property taxes, and other deductible expenses, add up to less than $15,750 as a single person or $31,500 as a married joint filer, you should claim the standard deduction.

If your itemized deductions add up to close to the amount of the standard deduction, you may still want to claim the standard deduction because it is a lot simpler. Your decision will depend on how much each option saves you. The higher your tax bracket, the greater the benefit of claiming the largest deduction, so your income may affect this choice.

How To Claim Your Mortgage Interest Tax Deduction

Here are the steps involved in claiming your mortgage interest tax deduction.

1. Gather Your Form 1098

Your lender will provide your Form 1098 to you each year. This form provides details on the mortgage interest you paid when you made your mortgage payments. You will need this form to know how much interest you can deduct. You will transfer the information from it onto your tax return when you claim your deduction.

2. Decide Whether to Itemize or Take the Standard Deduction

Add up the value of the deductions that you could claim if you itemize, including your mortgage interest and deductible state and local property taxes. Compare this amount to the standard deduction based on your filing status. If this calculation reveals that itemizing will provide significant savings, you should itemize. Otherwise, claim the standard deduction.

3. Use Schedule A (Form 1040) to Report Your Mortgage Interest

You will report your mortgage interest on your 1040 form when you complete this document. This is the form you send to the IRS. You can complete it manually or use a tax software program to make the process easier. If you use a program, it will tell you exactly which box to list your mortgage interest in.

4. Consult a Tax Professional When Needed

If you are not sure what deductions you are eligible for or don't know how to complete your tax forms and claim your deductions, you should talk with a tax professional. A tax professional can help you to comply with IRS rules while saving as much as possible on your taxes.

Mortgage Interest Deduction FAQs

If you still need to know more about whether mortgage interest is tax-deductible, check out the answers to some frequently asked questions.

Is Mortgage Interest Deductible Without Itemizing?

Mortgage interest is not tax-deductible without itemizing. If you itemize, you will need to list your mortgage interest on Schedule A of Form 1040. You should only itemize and claim this deduction if itemizing will save you more than claiming the standard deduction.

Is the Mortgage Interest Tax Deduction a Tax Credit?

The mortgage interest tax deduction isn't a tax credit.

• Tax credits reduce your tax bill on a dollar-for-dollar basis, so if you owed $1,500 and claimed a $1,000 credit, you'd only owe $500.
• Deductions reduce taxable income, so if you had $50,000 in income and claimed a $1,000 deduction, you'd only have $49,000 in income, and you'd save by not paying tax on the $1,000.

There's a Mortgage Tax Credit Certificate (MCC) program, which offers a tax credit that provides substantial additional tax savings to qualifying low and moderate-income first-time buyers.

Are There Other Tax Deductions for Homeowners?

There are other deductions homeowners may be able to take advantage of. Examples of tax deductions for homeowners that can reduce your income taxes include deductions for:

• Property taxes
• Certain home improvements, such as installing accommodations for a disabled family member or installing energy-efficient upgrades
• Using part of your home as an office if you run your own business or are self-employed

Final Thoughts: Mortgage Interest Deduction

The mortgage interest deduction exists because the government wants to subsidize homeownership by making interest more affordable. While you do have to itemize to claim the deduction, it can provide valuable savings if you are eligible. Your mortgage lender can help you discover the tax savings you may be eligible for if you take out a new loan and deduct interest.

Reach out to Freedom Mortgage today to explore loan options, learn more about how buying a home could help you save on your taxes, and prequalify for a home loan today.