What is the mortgage interest tax deduction?

M1 Team
M1 Team February 12, 2024
Two people holding up a set of keys with a house-shaped keychain attached to it, likely the keys to their new home.

The mortgage interest deduction is a tax incentive for homeowners. It’s an itemized deduction that allows homeowners to subtract mortgage interest from their taxable income, lowering the amount of taxes they owe. This deduction can also be taken on loans for second homes as long as it stays within IRS limits.

Keep in mind that if you plan to take the standard deduction, you won’t be able to claim the mortgage interest tax deduction. The standard deduction is a specific dollar amount that reduces the amount of income on which you’re taxed; the alternative would be to itemize deductions, which is typically done when your itemized deductions would be higher than the standard deduction amount.

For the 2023 tax year, which will be the relevant year for April 2024 tax payments, the standard deduction is:

  • $13,850 for single filing status
  • $27,700 for married, filing jointly
  • $13,850 for married, filing separately
  • $20,800 for heads of households

If you plan to itemize deductions, including mortgage interest, read on.

How to claim the mortgage interest tax deduction

For tax year 2023, single filers, joint filers, and heads of households can deduct the interest on mortgages for the first $750,000 of indebtedness. Those married but filing separately may each deduct their mortgage interest for the first $350,000 of indebtedness. There are a few exceptions to be aware of:

  • Mortgages taken out before October 13, 1987, are considered grandfathered debt and are not limited. This means even if your mortgage is higher than $750,000 (or $350,000 each for married filing separately) you can deduct all of your interest.
  • Any home purchased between October 13, 1987, and December 16, 2017, is still eligible to deduct mortgage interest for the first $1 million of indebtedness ($500,000 each, if married filing separately).
  • Any home that was sold before April 1, 2018, is eligible for the $1 million limit—only if there was a binding contract entered before December 15, 2017, to close before January 1, 2018, and the home was purchased before April 1, 2018.

At the beginning of the new year, your lender or mortgage servicer will provide you with a Form 1098 detailing how much you paid in mortgage interest and points during the past year. It’s the proof you need for your mortgage interest deduction.

Keep in mind, you will only get a 1098 form if you paid more than $600 in mortgage interest. If you paid less than $600 in mortgage interest, you can still deduct it, but your lender isn’t required to send you Form 1098.

Once you know how much interest you’ve paid, you’ll itemize your deductions on Schedule A of Form 1040. You can find the mortgage interest deduction part on line 8 of the form. You’ll put in the mortgage interest information found on your 1098 in that section.

It’s important to note that you can only itemize mortgage interest if you did not use your home as a business. If for example, you were using this home as a rental property, you could not take the mortgage interest deduction on Schedule A.

This article is for educational purposes only and should not be taken as tax advice. Speak to a licensed tax professional for tax advice.

Disclosures:

All examples above are hypothetical, do not reflect any specific investments, are for informational purposes only, and should not be considered an offer to buy or sell any products. M1 does not provide any financial advice.  

All investing involves risk, including the risk of losing the money you invest. Brokerage products and services are offered by M1 Finance LLC, Member FINRA / SIPC, and a wholly owned subsidiary of M1 Holdings, Inc.

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