Can I Claim Mortgage Payments on My Taxes?

Homeownership comes with significant costs, but tax benefits can help offset some expenses. Many homeowners wonder if their mortgage payments qualify for deductions, potentially reducing taxable income. However, not all portions of a mortgage payment are eligible, and specific IRS rules determine what can be claimed.

Understanding these tax rules is essential to maximize savings and avoid common misconceptions.

Interest vs. Principal Breakdown

A mortgage payment consists of two main components: interest and principal. Interest is the cost of borrowing money, while principal reduces the loan balance. These two elements are treated differently for tax purposes.

Mortgage interest is generally deductible if the loan meets IRS requirements. As of 2024, homeowners can deduct interest on up to $750,000 of mortgage debt ($375,000 for married individuals filing separately) for loans taken out after December 15, 2017. For mortgages originated before that date, the limit is $1 million ($500,000 for married filing separately). This deduction applies to primary and secondary residences, provided the loan was used to buy, build, or improve the property.

The principal portion of a mortgage payment is not deductible. Since this amount repays the borrowed money rather than covering a cost associated with homeownership, the IRS does not allow it to be written off. Many homeowners mistakenly assume their entire mortgage payment qualifies for tax benefits, but only the interest portion is deductible.

Ownership and Liability Considerations

To deduct mortgage interest, a taxpayer must be legally responsible for the loan and have an ownership interest in the property. Even if someone makes payments on a mortgage, they cannot claim the deduction unless their name is on the loan or they are considered an equitable owner under tax law.

For co-owners who are not married, the deduction must be divided based on each person’s financial contribution. If one party pays the entire mortgage but both names are on the loan, the payer can generally deduct the full amount. If payments are shared, each owner can only deduct their portion. Keeping records such as bank statements or a written agreement can help substantiate claims if questioned by the IRS.

Co-signers present a unique situation. A co-signer is legally responsible for the loan but does not necessarily have ownership rights unless they are also on the title. Since the IRS requires an ownership stake to claim deductions, a co-signer who is not on the deed cannot deduct mortgage interest, even if they make payments.

Itemized Deductions Criteria

Claiming mortgage interest requires itemizing deductions rather than taking the standard deduction. The IRS allows taxpayers to choose between these two methods, but itemizing only makes sense if total deductible expenses exceed the standard deduction. For 2024, the standard deduction is $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of household.

Mortgage interest is reported on Schedule A of Form 1040, where it is combined with other deductions such as medical expenses exceeding 7.5% of adjusted gross income, charitable contributions, and state and local taxes (subject to the $10,000 SALT cap). Since the deduction is only beneficial when total itemized expenses exceed the standard deduction, homeowners should calculate both options before filing.

Interest on home equity loans or lines of credit (HELOCs) is deductible only if the borrowed funds were used to buy, build, or improve the home securing the loan. Using a HELOC for personal expenses, such as paying off credit card debt, disqualifies the interest from being deducted.

Tax Documentation for Deductions

Maintaining accurate records is necessary when claiming mortgage interest deductions. Lenders issue Form 1098, Mortgage Interest Statement, by January 31 each year, detailing the total interest paid over the previous tax year. This form serves as the primary evidence for claiming the deduction, and discrepancies between reported and deducted amounts could trigger IRS scrutiny.

Beyond Form 1098, taxpayers should retain closing disclosures and loan origination documents, as these detail points paid at closing, which may be deductible over time or in the year paid. If a loan was refinanced, records of the previous and new loan terms are necessary to track deductible interest, especially if part of the proceeds was used for non-home improvement purposes.

For those making mortgage payments through escrow accounts, keeping annual escrow statements helps verify reported interest payments. If a mortgage is held by a private lender, such as seller financing, the borrower must maintain independent records, including a written agreement and payment history, as the lender may not issue a Form 1098.

Property Taxes and Potential Deductions

In addition to mortgage interest, property taxes may provide tax benefits. The IRS allows taxpayers to deduct state and local property taxes paid during the year, but this deduction is capped at $10,000 ($5,000 for married individuals filing separately). Homeowners in high-tax states may not be able to deduct their full property tax bill if they also pay significant state income or sales taxes.

Only property taxes assessed by state or local governments based on the home’s value qualify for the deduction. Fees for services such as trash collection, water, or special assessments for neighborhood improvements are not deductible. Prepaid property taxes can only be deducted in the year they are actually paid. Homebuyers who reimburse sellers for prepaid taxes at closing should review their settlement statements, as this amount may also be deductible.

Mortgage Insurance Premium Implications

For homeowners who made a down payment of less than 20%, mortgage insurance is often required. Mortgage insurance premiums (MIP) for FHA loans, private mortgage insurance (PMI) for conventional loans, and guarantee fees for USDA and VA loans have historically been deductible. However, as of 2024, this deduction was not extended for tax years beyond 2021, meaning premiums paid in recent years are not deductible unless new legislation reinstates the benefit.

Even when available, the deduction for mortgage insurance premiums has been phased out for higher-income taxpayers. In previous years when it was allowed, the deduction began to phase out for married couples filing jointly with an adjusted gross income above $100,000 ($50,000 for married filing separately) and was eliminated entirely at $109,000 ($54,500 for separate filers). Homeowners should monitor tax law changes to determine if this deduction is reinstated in future years and consult a tax professional to assess eligibility.