What Is the Limit on Mortgage Interest Deduction?

The mortgage interest deduction allows homeowners to deduct interest paid on their mortgage from taxable income, potentially lowering their tax bill. However, limits based on loan size, filing status, and how the borrowed money is used determine eligibility. Understanding these restrictions helps homeowners maximize deductions while staying within IRS rules.

Mortgage Principal Threshold

The mortgage interest deduction is capped based on loan amount. Homeowners can deduct interest on up to $750,000 of mortgage debt for loans taken out after December 15, 2017. Loans originated before this date are subject to the previous $1 million limit. These thresholds apply to the total mortgage balance across all qualifying loans on a primary residence.

If a homeowner’s mortgage exceeds the limit, only interest on the first $750,000 (or $1 million for older loans) is deductible. For example, with a $900,000 mortgage from 2019, only interest on the first $750,000 qualifies. The IRS does not allow deductions beyond the cap.

The limit applies to acquisition debt—loans used to buy, build, or substantially improve a home. If a mortgage balance increases due to refinancing or additional borrowing, the excess portion does not qualify unless it meets IRS criteria. For instance, refinancing a $600,000 mortgage into a $700,000 loan, with the extra $100,000 used for home renovations, keeps the full amount deductible. However, if the extra funds are used for personal expenses, interest on that portion is not deductible.

Single vs. Joint Filing Thresholds

The deduction limit depends on filing status. Married couples filing separately must split the mortgage debt limit, meaning each spouse can only deduct interest on up to $375,000 of qualified mortgage debt for loans taken out after December 15, 2017. Couples filing jointly can deduct interest on up to $750,000.

For unmarried co-owners, each person can deduct interest based on their share of payments, up to the overall loan limit. If two individuals purchase a home together and both are listed on the loan, each can deduct the portion of interest they paid. This can be beneficial when one owner has a higher income and can take greater advantage of the deduction.

Filing status also affects whether itemizing deductions—including mortgage interest—is worthwhile. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If total itemized deductions do not exceed these amounts, taking the standard deduction may be more beneficial.

Second Home Interest

Mortgage interest on a second home is deductible if the property meets IRS guidelines. The home must be used for personal purposes at least part of the year, and the loan must be secured by the property. Renting out a second home changes tax treatment based on personal versus rental use.

If rented for fewer than 15 days per year, rental income does not need to be reported, and the property is treated as a personal residence for tax purposes. Mortgage interest remains deductible as with a primary home. If rented for more than 14 days, different tax rules apply, and deductions may be limited based on rental income and expenses.

To maintain second-home status, the owner must use the property for at least 14 days annually or for more than 10% of total rental days, whichever is greater. Falling short of this threshold can reclassify the home as a rental property, affecting deductions for mortgage interest, depreciation, and rental-related expenses.

Home Equity Loan Restrictions

The Tax Cuts and Jobs Act of 2017 restricted interest deductions on home equity loans and home equity lines of credit (HELOCs). Previously, homeowners could deduct interest on up to $100,000 of home equity debt regardless of use. Now, interest is deductible only if the loan proceeds are used to buy, build, or substantially improve the taxpayer’s primary or secondary residence.

For example, if a homeowner takes out a $50,000 HELOC to remodel a kitchen, the interest is deductible. However, if the same loan is used to pay off credit card debt or fund a vacation, the interest is not deductible. The IRS defines substantial improvements as projects that add value to the home, such as structural expansions or major renovations. Routine maintenance, like painting or minor repairs, does not qualify. Taxpayers must keep records, including loan agreements and receipts, to substantiate compliance if audited.

Refinanced Mortgage Calculations

Refinancing affects interest deductibility depending on the loan structure and whether additional funds are borrowed. When a homeowner refinances, interest on the refinanced amount remains deductible if the loan qualifies as acquisition debt.

If the new loan exceeds the original mortgage balance, deductibility of interest on the excess portion depends on use. If the extra funds go toward home improvements, the interest remains deductible. If used for personal expenses, such as paying off student loans or purchasing a vehicle, interest on that amount is not deductible.

The total mortgage balance after refinancing must still fall within the $750,000 limit (or $1 million for older loans) to qualify for full deductions. Homeowners should document how refinanced funds are used to ensure compliance.

Points and Prepaid Interest

Mortgage points and prepaid interest also affect deductions. Points, or discount points, are fees paid to the lender at closing to reduce the loan’s interest rate. The IRS allows taxpayers to deduct points in the year they are paid if the loan is used to purchase or build a primary residence and meets certain conditions. For refinancing, points must generally be deducted over the loan’s life rather than all at once.

Prepaid interest, covering interest charges from closing to the end of the month before the first mortgage payment, is deductible in the year paid. However, this deduction is only available if the taxpayer itemizes rather than taking the standard deduction. Homeowners should review settlement statements to determine deductible amounts.