Home Mortgage Deduction, Interest Expenses
The Home Mortgage Interest Tax Deduction is an itemized deduction you can claim on your tax return for home mortgage interest you paid during the tax year. Home mortgage interest is interest you pay on a qualified residence loan for a main or second home. A qualified residence loan is a mortgage you use to buy a home, a second mortgage, a line of credit, a home equity loan, or a home equity line of credit. You can itemize your deductions on your return if they are more than your standard deduction. Otherwise, it is not tax advantageous to you.
The easiest and most accurate way to find out if you can deduct home mortgage interest tax payments is to start a free tax return on eFile.com. You will provide your mortgage interest information from your eFileIT Form 1098-T and we will determine whether or not it is best for you to itemize your deductions and claim the tax deduction on home mortgage interest payments.
Mortgage Deduction Requirements
You can deduct your home mortgage interest payments based on these factors:
- The mortgage date
- The mortgage amount and
- How you use the mortgage amount
- Compare Mortgages: 15 year versus 30 year mortgage.
The Home Mortgage Interest Tax Deduction can only be claimed if you itemize on your tax return - that is, when your itemized deductions are greater than your standard deduction and you file a Schedule A. Your standard deduction is a fixed amount you can deduct based on your tax return filing status. Itemized deductions are not a fixed amount-they are the total deductions that are listed on your eFileIT Schedule A.
Since the standard deduction for 2018 and later Tax Returns almost doubled due to tax reform and the Tax Cuts and Jobs Act (see table below), it will not be beneficial for most taxpayers to itemize on their returns and the changes to the Home Mortgage Interest Tax Deduction will not affect them. Find out when you prepare your return on eFile.com, whether it is better for you to itemize or use the standard deduction as it is all figured out for you!
Qualified Residence Loan Amount Limits
You can deduct the mortgage interest you paid up to a certain amount of your total qualified residence loan amount. The amount is based on your filing status and the year you purchased the mortgage. You may refinance the existing mortgage and keep deducting the interest up to the amount based on your filing status as long as you do not increase the amount you owe with the refinance.
Below are the amounts for mortgages purchased between 2018-2025:
Married Filing Jointly/Qualifying Widow
Head of Household
Married Filing Separately
Here are the grandfathered amounts for mortgages purchased before 2018 (you may claim these amounts on 2018-2025 Tax Returns if you purchased the mortgage before 2018)
Married Filing Jointly/Qualifying Widow
Head of Household
Married Filing Separately
Home Equity Loans and Lines of Credit
For home equity loans incurred after December 15, 2017, you cannot deduct interest on the debt unless it is used to buy, build, or improve your home that secures the debt. Your interest deduction is limited to debts up to $750,000 (Married Jointly Filers) or $375,000 (Married Filing Separately). Home equity loans incurred on or before December 15, 2017 are grandfathered into the old $100,000 debt limit and the interest deduction can be applied to non-home expense payments (college tuition, credit card debt, etc.). Please compare a 15 year mortgage versus a 30 year mortgage and the implications on the effective home price over time.
Tomáš Malík, Unsplash
Mortgage Insurance Premiums
The tax deduction for mortgage insurance premium payments was extended for 2018 and future Tax Returns on December 20, 2019. You can report mortgage insurance premiums totaling $600 or more on your 2021 tax return. When you prepare and e-file your 2021 Tax Return on eFile.com, we will report the premiums on the correct line based on the information you enter during the e-file process.
If you filed your 2020 Tax Return or other previous year return and want to claim your mortgage insurance premiums, you will need to prepare and file an amended tax return. Find 2020 and other previous year tax forms.
Is There a Tax Credit for Mortgage Insurance Premiums?
The IRS offers a federal tax credit for mortgage insurance premiums via Form 8396 - eFileIT. This credit can be claimed if you were issued a mortgage credit certificate or MCC by a state or local government agency. As a homeowner, you can claim this credit when you file your federal tax return. The credit is generally geared towards lower or moderate income earners often to help with the purchase of a new residence through a mortgage. This credit is nonrefundable, meaning it can only be used to offset any tax liability, but it does carryforward for three years. For instance, you could use the maximum credit amount of $2,000 over two years, paying your tax liability on your return of $1,000 each year.
When claiming the credit, the eFile Tax App will offset your mortgage interests deduction on your return since these are two separate tax items. You can clam both, but the credit reduces the deduction. Enter your 1098-T on your eFile account and answer the related questions to see if you qualify for the credit and/or deduction.
Mortgage points are fees you pay to a mortgage loan lender at a reduced interest rate during the closing of an exchange. You can deduct all your points as mortgage interest in the year you pay them if you meet all of these requirements:
- You use a loan to build or buy your main home.
- Your main home secure your loan.
- Paying points is an established business practice in the area where the loan is created.
- The points you paid were not more than the loan amount usually charged in that area.
- You report income in the year you receive it and deduct expenses in the year you paid them.
- The point you paid were not for items usually listed separately on a settlement sheet (such as appraisal fees, inspection fees, and property taxes).
- The funds you provided before or at closing (including seller paid points) were at least as much as the points charged. Be aware that you cannot have borrowed the funds from your mortgage broker or lender in order to pay the points.
- The points were calculated as a percentage of the main amount of the mortgage.
- The amount is clearly shown as points on your settlement statement.
There are two types of mortgage points, discount and origination.
Discount points are fees you may pay upfront to lower the interest rate on a mortgage loan. Each point is equal to one percent of the loan amount (one point equals $1,000 for every $100,000 of the loan amount, so one point on a $250,000 loan is $2,500). Therefore, the more points you pay, the less you pay on your interest rate (usually by 0.25%) and monthly loan payment.
Your discount points are deductible when you rent out a main or second home if:
- The mortgage is obtained to build, buy, or improve the home (and the home is the collateral for the loan) and
- The money you use to buy the points is paid directly to the lender (not borrowed).
For example, George borrows a $100,000 mortgage with a 5% interest rate, making his monthly payment $537. When he purchases three discount points, his interest rate goes down to 4.25%, making his new monthly payment $492.
However, the upfront costs of taking out a mortgage may increase when you purchase points. Therefore, if you plan to sell or refinance your home before a break even point, it may not be best for you to buy points. In George's case, the three discount points he purchased would cost him $3,000 in exchange for saving $45 a month, so he would need to keep his home for 66 months (or 5 and a half years) to break even on his point purchase.
Origination points are required fees you pay to a loan leader (either upfront or throughout the the life of the loan) to cover the lender's costs of creating and processing a loan (i.e. fees charged by loan officer or broker and others who work to execute the loan). Each origination point is 1 percent of the total loan amount.
Your origination points can be claimed as a depreciation expense in the year you borrow the loan or over the lifespan of the loan, depending on how the points are paid. Be aware that the points are non-deductible on non-rental properties.
Deductible and Nondeductible Examples
Home Mortgage Interest Payments
- In February 2021, Jack and Jill take out a $500,000 mortgage to purchase a main home at a fair market value of $800,000. In March 2021, they take out a $250,000 home equity loan to include an addition on the main home. Since the total amount of both homes do not exceed $750,000 and they do not exceed the cost of the home, all the interest they paid on the loans is deductible. However, if they use the home equity loan to pay for personal expenses (i.e. pay off credit card debt and/or student loans), then the interest on the home equity loan is not deductible.
- In January 2021, Mary and Bill take out a $400,000 to purchase a main home. In July 2021, they take out a $150,000 loan to purchase a vacation home. Since the total of both mortgages do not exceed $750,000, all the interest they paid on both mortgages can be claimed as a tax deduction.
- In July 2021, Josh borrows $50,000 to remodel his kitchen and bathroom. In November 2021, he takes out a $100,000 loan to upgrade his living room. He can deduct the total amount of interest he paid on the home improvement loans throughout the year.
- Sara pays $4,000 in points and will make 360 monthly payments on a 30-year loan. This makes her allowable deduction $11.11 per payment (or $133.33 for 12 payments).
- Jeremy purchases $3,600 in points on a 30-year loan to buy a vacation home. He deducted a total of $540 in points on his prior year tax returns, then he sold the home. This means that he can claim a deduction on $3,060 in points on his 2021 tax return ($3,600 minus the $540 he previously deducted).
- Bella and Edward refinanced their $200,000 loan with a new 30-year $250,000 mortgage. In 2021, they paid $2,000 in points and used the extra $50,000 to make home improvements. They can claim a 20% deduction of $400 ($50.000/250,000 x 2,000) of points on their 2021 tax return. They must deduct the remaining points over 360 monthly payments or $53.28 ($1,500/360 x 12) per year.
How to Claim the Tax Deduction or Credit
When you prepare your tax return on eFile.com, you can enter your Home Mortgage Interest information on the Mortgage Interest - Form 1098 screen. We will calculate the deduction amount for you and report it on Schedule A of your return. Schedule A will automatically be generated based on the information you enter on the Mortgage Interest - Form 1098 screen. If claiming the credit, we will walk you through questions and fill in Form 8396.
Additional home related pages and documents
15 year mortgage versus 30 year mortgage comparison
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