Paying interest is no fun, but the interest on your mortgage could help you lower your taxes.
The mortgage interest deduction (MID) allows borrowers to write off a portion of the interest on their home loan. That lowers your taxable income and can move you into a lower tax bracket, which can save you thousands at tax time.
The MID was introduced in 1913, the same year as federal income taxes. With interest rates hitting a 23-year-high in 2023, this deduction could be particularly beneficial this tax season.
Here's what you need to know about the mortgage interest deduction, including who is eligible, how much you can claim and how to include it on your tax return.
What we'll cover
- What is the mortgage interest deduction?
- How much interest can I write off?
- Is the mortgage interest deduction right for you?
- How to claim a mortgage interest deduction
- Decrease the interest you're paying next year by refinancing
- FAQ
- Bottom line
What is the mortgage interest deduction?
The mortgage interest deduction allows homeowners to deduct a portion of the interest on their home loan from their taxable income. You'll have to itemize your return and the loan must be a secured debt with your property as collateral.
In addition to private loans, the MID can be claimed using government-backed mortgages like USDA, VA and FHA loans.
If you want to claim the deduction for a mortgage refinance, home equity loan or home equity line of credit, the funds must have been used toward renovations or other improvements.
You can also deduct mortgage points, any penalties for paying your mortgage off early and some late payment charges.
How much interest can I write off?
You can deduct the interest you paid on the first $750,000 of your mortgage during the relevant tax year. For married couples filing separately, that limit is $375,000, according to the Internal Revenue Service.
If you took out your mortgage between Oct. 13, 1987, and Dec. 16, 2017, the limit is $1 million or $500,000 for couples filing separately. There is no cap for mortgages taken out before Oct. 13, 1987.
The maximum deduction includes the total amount of loans on your primary and secondary residences.
Is the mortgage interest deduction right for you?
The Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, from $6,500 to $12,000 for individual filers, from $13,000 to $24,000 for joint filers and from $9,550 to $18,000 for heads of household.
As a result, the number of taxpayers who choose to itemize their returns and claim the MID has declined precipitously.
Add up the interest you paid on your mortgage last year, along with any other deductions you plan to take. If the total is less than the standard deduction, it's probably not worth the trouble of itemizing.
If it is worth it, you can use TurboTax Deluxe to deduct mortgage interest and property taxes, claim expenses related to selling your home and take advantage of other tax breaks for homeowners. There are also tiers with tax pros who can give unlimited advice or even do your return for you, from start to finish.
TurboTax
On TurboTax's secure site
Cost
Costs may vary depending on the plan selected - click "Learn More" for details
Free version
TurboTax Free Edition. ~37% of taxpayers qualify. Form 1040 + limited credits only.
Mobile app
Yes
Live support
Available with some pricing and filing options
Click here for TurboTax offer details and disclosures. Terms apply.
You'll claim the mortgage interest deduction with TaxSlayer's free tier. You can, however, with the software's paid options. The self-employed tier is great for freelancers and gig workers and it includes support from a tax expert with self-employment expertise. It also comes with audit defense and reminders to pay quarterly taxes.
TaxSlayer
On TaxSlayer's secure site
File your taxes for as low as $30.36 with TaxSlayer*
Use Code: CNBC20
Cost
Costs may vary depending on the plan selected.
Free version
Yes (basic 1040)
Mobile app
Yes
Tax expert support
Yes, certain plans
*20%off your federal tax return. Offer is valid on federal tax returns e-filed by April 15, 2024, at 11:59 p.m. ET.Only valid for new or first time TaxSlayer users only.Promotion code must be entered at checkout. Offer is not applicable to state tax returns or additional products. Offer is valid for one-time use only and cannot be combined with any other coupons, promotions, discounts, or offers. Offer is nontransferable, cannot be sold or otherwise bartered, and is not applicable to previous purchases or returns.
How to claim the mortgage interest deduction
If you paid more than $600 in interest last year, your mortgage provider should send you a completed Form 1098 to use to fill out the Itemized Deduction List on Form 1040-Schedule A.
In some cases, interest paid on timeshares, rentals, home offices and other properties may qualify for a deduction, as well, but they may require additional forms. You can consult IRS Publication 936 for more information.
Decrease the interest you're paying next year by refinancing
If you want to save more money next year, refinancing your mortgage at a lower rate will reduce the amount of interest you'll have to pay.
Some qualified mortgage borrowers who have a Freddie Mac mortgage or a Fannie Mae mortgage can refinance with Freddie Mac's ReFi Possible and Fannie Mae's ReFi Now. They both guarantee at least a 0.50% drop in your mortgage rate and a decrease in your monthly payments.
PNC Bank offers these refinancing products, according to the bank. PNC is available in all 50 states and provides both online and in-person service.
PNC Bank Mortgage Refinance
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Fixed-rate, adjustable-rate, FHA loans, VA loans and jumbo loans
Fixed-rate Terms
10 – 30 years
Adjustable-rate Terms
Available in periods of 7 and 10 years for a fixed rate, followed by an adjustment period when the interest rate may increase or decrease on an annual or semi-annual basis
Credit needed
Not disclosed
Terms apply.
Rocket Mortgage also offers these two products. You can get pre-qualified in minutes online, and you can use its app to manage your payments.
Rocket Mortgage Refinance
Annual Percentage Rate (APR)
Apply online for personalized rates
Types of loans
Conventional loans, FHA loans, VA Interest Rate Reduction Refinance Loan (IRRRL) and jumbo loans
Fixed-rate Terms
8 – 29 years
Adjustable-rate Terms
Not disclosed
Credit needed
580 if opting for FHA loan refinance or VA IRRRL; 620 for a conventional loan refinance
Already have a mortgage through Rocket Mortgage or looking to start one? Check out the Rocket Visa Signature Card to learn how you can earn rewards
FAQ
Is mortgage interest deductible?
Yes, you can deduct your mortgage interest if you are taking an itemized deduction.
How much mortgage interest can I deduct?
You can deduct the interest you paid on the first $750,000 of your mortgage during the relevant tax year. The limit is $375,000 for married couples filing separately.
What are tax deductions?
Tax deductions are certain costs deducted from your overall income that you don't have to pay taxes on.
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Bottom line
The mortgage interest deduction can make a dent in a homeowner's tax bill, but it's important to understand if you qualify for it and if claiming it would net you more than just taking the standard deduction.
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Read more
What are property taxes and how do you budget for them?
These tax breaks can save homeowners thousands of dollars
Tips for getting through tax season this year
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
