Mortgage Interest Deduction

Quick Takeaways

The value of the mortgage interest deduction depends on the amount of your mortgage, your interest rate, how far along you are in paying off your mortgage, and your tax bracket
The deduction can help homeowners reduce their taxes and thus make owning a home more affordable
You must itemize your deductions on your tax return in order to claim it

Mortgage Interest Deductions Provisions From the 2017 Federal Tax Legislation

Check out the Tax Cuts and Jobs Act - What it Means for Homeowners and Real Estate Professionals page for information on the major provisions affecting current and prospective homeowners, commercial real estate, and real estate professionals.

What Are the Limits on Mortgage Tax Interest Deductions?

The Tax Cuts and Jobs Act reduced the limit on deductible mortgage debt to $750,000 for new loans taken out after 12/15/2017. Current loans of up to $1 million are grandfathered and are not subject to the new $750,000 cap. Neither limit is indexed for inflation.
Homeowners may refinance mortgage debts existing on 12/15/2017 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the mortgage being refinanced.
The Act repealed the deduction for interest paid on home equity debt through 12/31/2025. Interest is still deductible on home equity loans (or second mortgages) if the proceeds are used to substantially improve the residence.
Interest remains deductible on second homes, but subject to the $1 million / $750,000 limits.

See References for more information.

References

NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require the member's nar.realtor login.

Mortgage Interest Deduction allows homeowners to reduce their taxable income by deducting the amount paid in mortgage interest. Learn how it can benefit housing and homeownership, check out the IRS rules and guidelines, download ebooks explaining the law, and find out why there is opposition to it.

Mortgage Interest Deduction Basics

How to Claim the Mortgage Interest Deduction on Your Taxes (CNBC, Jul. 15, 2024)

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.

To see if it’s worth it for you, add up the interest you paid on your mortgage last year, along with any other deductions you plan to take. If the total is more than the standard deduction, it’s probably worth the effort of itemizing.

Mortgage Interest Deduction: What It Is and What Qualifies (Bankrate, Mar. 25, 2024)

Generally, you claim the mortgage interest tax deduction in the year the interest was accrued. For some costs, such as mortgage points, you can stretch out the deduction over the life of the mortgage.

While almost all homeowners qualify for the mortgage interest tax deduction, you can only claim it if you itemize your deductions on your federal income tax return by filing a Schedule A with your Form 1040 or an equivalent form.

The Mortgage Interest Deduction: Your Guide for The 2024 Tax Year (Rocket Mortgage, Feb. 29, 2024)

“The mortgage interest deduction is a tax incentive for homeowners. This itemized deduction 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.”

Could a Boost in The Standard Deduction Kill the Mortgage and Charitable Deductions? (Tax Policy Center, Jun. 12, 2023)

“For example, if Congress wants to subsidize home ownership at all, it could turn the mortgage deduction into a credit for all homebuyers, not just those who take out big mortgages.”

Mortgage Interest Deduction: What You Need to Know (Mortgage Professional America Magazine, Apr. 18, 2022)

“If you claim the mortgage interest deduction on Schedule A of Form 1040, you will need to itemize rather than take the standard deduction when you file your taxes.”

How Does the Mortgage Interest Deduction Benefit Housing and Homeownership?

These Are the Tax Breaks You Can Get When You Buy a House (U.S. News & World Report, Jul. 2, 2024)

Mortgage interest deduction. This is a deduction for interest paid on mortgage debt, but you will need to itemize your deductions to qualify for this tax break. “Under current law, this applies to loans up to $750,000,” Rubinstein says.

The Tax Benefits of Owning a Home: Must-Know Deductions and Credits (Credible, Mar. 27, 2024)

If you acquired your home prior to Dec. 15, 2017, you can deduct the interest on up to $750,000 if you’re filing jointly and up to $375,000 if you’re filing single.

Mortgage Interest Deductions? Not a Bad Idea After All (Journal of Monetary Economics, Jan. 9, 2024)

Thus, removing homeownership subsidies is likely to be substantially more harmful in these areas, both in the aggregate and for low-income renters in particular. Further, rents in communities across the United States have grown more quickly than incomes over the past two decades, leading to a large increase in the share of cost-burdened renters (Whitney, 2023). If this trend continues, eliminating homeownership subsidies would be even more harmful in the future.

Why Homeownership Should Continue to Be Incentivized by Our Federal Tax Systempdf (Rosen Consulting Group/National Association of REALTORS®, Feb. 2020)

As homeowners build equity the increased wealth leads to greater consumer spending that spurs business activity and provides a positive multiplier effect that creates jobs and income throughout the economy. Every 10% increase in total housing market wealth would translate to approximately $147 billion in additional consumer spending, or 0.8% of GDP, as well as billions of dollars in new federal tax revenue.

Why Is There Opposition to the Mortgage Interest Deduction?

What Any Economist Will Tell You (But No Real Estate Agent Will) (The Washington Post, Jun. 24, 2024) E

The deduction is regressive, benefiting only the small minority of taxpayers (under 10 percent as of 2020) who have enough income to bother itemizing their deductions. Since someone has to make up the lost tax revenue, it's a transfer to the upper class from the middle class; to homeowners in expensive markets from those living in modestly priced locales; and to people who buy the biggest home they can, and mortgage it to the absolute hilt, from those who save for a sizable down payment, buy a sensible amount of house and pay down their loan as quickly as possible.

A Tax Break to Encourage Homeownership Primarily Helps the Wealthy (Marketplace, Jun. 3, 2024)

Still, the vast majority of people don’t benefit from the mortgage interest deduction, and many economists argue there’s not much evidence that the mortgage interest deduction encourages more people to buy homes instead of renting. Instead, there’s evidence it drives up home prices or incentivizes bigger homes.

The Home Mortgage Interest Deduction Reinforces Racial Disparities (Tax Policy Center, Apr. 2, 2024)

We estimate that after the passage of the 2017 Tax Cuts and Jobs Act (TCJA), the average tax benefit of the HMID was $199 across all White families (including those who did not claim it or file a tax return) in 2019. In contrast, the benefit was, on average, $88 for Black families and $66 for Hispanic families. Overall, Black and Hispanic families received just 54 percent and 38 percent, respectively, of the average benefit for all families. White families got 21 percent more than the average.

Is it Time for Congress to Reconsider the Mortgage Interest Deduction? (Bipartisan Policy Center, Nov. 2, 2023)

Among those who claim the MID, higher-income households enjoy a greater average reduction in their tax burden because they tend to have higher-value mortgages and belong to higher tax brackets, both of which translate to larger savings through the MID.

Rules, Forms, & Guidelines from the IRS on Mortgage Interest Tax Deduction

Can I Deduct My Mortgage-Related Expenses? (Internal Revenue Service, Jan. 16, 2024)

“This interview will help you determine if you're able to deduct amounts you paid for mortgage interest, points, mortgage insurance premiums, and other mortgage-related expenses.”

Home Mortgage Interest Deduction—Publication 936pdf (Internal Revenue Service, Nov. 30, 2023)

“This publication discusses the rules for deducting home mortgage interest.”

eBooks & Other Resources

eBooks.realtor.org

The following eBooks and digital audiobooks are available to NAR members:

The Complete Idiot's Guide to Mortgages (eBook)

The Everything Guide to Mortgages Book (eBook)

Mortgage Confidential (eBook)

Mortgage Myths (eBook)

Mortgage Rip-offs and Money Savers (eBook)

Mortgages 101 (eBook)

Mortgages For Dummies® (eBook)

How to Invest in Real Estate & Pay Little or No Taxes (eBook)

The Home Mortgage Book (eBook)

The Mortgage Answer Book: Practical Answers to More Than 150 of Your Mortgage and Loan Questions (eBook)

The Mortgage Encyclopedia: The Authoritative Guide to Mortgage Programs, Practices, Prices and Pitfalls (eBook)

Mortgage Management for Dummies (Audiobook)

The Tax Lady's Guide to Beating the IRS and Saving Big Bucks on Your Taxes (eBook)

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The inclusion of links on this page does not imply endorsement by the National Association of REALTORS®. NAR makes no representations about whether the content of any external sites which may be linked in this page complies with state or federal laws or regulations or with applicable NAR policies. These links are provided for your convenience only and you rely on them at your own risk.

Advocacy

What is the fundamental issue?

Individuals are permitted to deduct interest paid on mortgage debt of up to $750,000. If the mortgage was taken out prior to December 16, 2017, and otherwise qualifies, the maximum amount is $1 million. The deduction is available for interest on mortgages for a principal residence and one additional residence. The $750,000 (or $1 million) limitation represents the combined allowable debt on two residences. Prior to the enactment of the Tax Cuts and Jobs Act of 2017, mortgage interest on up to $100,000 of debt on home equity loans or lines of credit also qualified for the deduction, even if the proceeds of the loan were used for personal reasons, such as a vacation or to pay off bills. However, since 2018, interest on home equity loans are deductible only to the extent the proceeds are used to substantially improve the home that secures the loan and the total of all mortgage loans for the first and second home do not exceed the limitation.

I am a real estate professional. What does this mean for my business?

For many decades, the mortgage interest deduction was a remarkably effective tool that facilitated homeownership. Before the changes made by the Tax Cuts and Jobs Act of 2017 took effect, about a third of all taxpayers in any given year itemized their deductions, and a high percentage of them were homeowners making mortgage payments. Thus, the tax law encouraged homeownership by incentivizing it. However, since 2018, only about one in ten taxpayers itemize their deductions. So, for the majority of homeowners, the tax code no longer encourages Americans to own a home instead of rent one. Many of those who still are able to itemize receive the benefit of the mortgage interest deduction, but these are most often not first-time buyers but taxpayers with higher incomes. Therefore, the deduction has been criticized as not targeting its benefits where they are most needed.

NAR Policy

NAR strongly opposed the changes in the 2017 Act that limited the use of the mortgage interest deduction. And NAR continues to strongly support the mortgage interest deduction for those who can itemize. However, because it is quite unlikely Congress will reverse the change that led to the deduction being eliminated for most homeowners, NAR also supports a tax credit for buying and owning a home that is not based on the mortgage interest deduction. Rather, such a credit would be designed for those who want to purchase a home but are finding it difficult to afford one.

Opposition Arguments

Opponents of NAR policy will say that only about a tenth of taxpayers itemize and thus benefit from the MID, and that the deduction encourages people to buy larger and more expensive homes than what they need. Some will also claim that it primarily benefits high-income Americans. For these reasons, opponents will say, the MID should be repealed.

Legislative/Regulatory Status/Outlook

The majority of the changes made by the Tax Cuts and Jobs Act of 2017, including the near doubling of the standard deduction that greatly minimized the use of itemized deductions such as the MID, are scheduled to expire at the end of 2025. Thus, a great deal of the law governing the way individuals are taxed is set to go back to the way it was in 2017, before the changes made by the Act took effect.

However, most observers believe that Congress is not likely to allow all of the tax provisions to revert back to their pre-2018 versions. Most Republicans, who sponsored the Tax Cuts and Jobs Act, want to see most or all of the changes made a permanent part of the law. No Democrats voted for the 2017 Act, and many of them have indicated they want to see at least some of the changes expire. However, there is a great deal of doubt that Democrats would support a reduction in the standard deduction. Many taxpayers believe a higher standard deduction was a positive change, and even some homeowners and policymakers do not appreciate the connection between a higher standard deduction and a decreased tax incentive to purchase and own a home. Therefore, while some changes to the tax law are likely when Congress deals with the expiration of most of the changes made by the 2017 Act, a reversal of the increased standard deduction is viewed as rather unlikely.

It was because of this dire outlook for the future of the MID that NAR’s Board of Directors approved policy in May 2020 to support tax policies that provide an incentive to purchase and own a primary residence through a tax credit for households that no longer itemize deductions and thus currently receive no assistance through the federal tax system to become or remain homeowners.

NAR Committee:

Federal Taxation Committee