Mortgage interest deduction

You can deduct the interest on a loan secured by your main home or a second home, as long as the money went to buy, build, or substantially improve that home. The IRS calls this acquisition debt. Interest counts on up to $750,000 of acquisition debt ($375,000 if married filing separately). Loans taken out before December 16, 2017 keep the old $1,000,000 limit.

This is an itemized deduction, claimed on Schedule A instead of the standard deduction. It only saves money when your itemized deductions add up to more than the standard deduction for your filing status.

New for 2026: the $750,000 limit, which had been due to expire, is now permanent, and mortgage insurance premiums (including PMI) count as interest again. The premium deduction shrinks once your AGI passes $100,000 and is gone above $109,000 ($50,000 and $54,500 if married filing separately). The cap on state and local taxes is also much higher than it used to be, $40,400 instead of $10,000, so mortgage interest plus property and income taxes now clears the standard deduction for more homeowners.

All three must be true.

• The loan is secured by your main home or one second home. A third home does not count.
• The money went to buy, build, or improve the home that secures it. This is the test that catches home equity loans and HELOCs. A HELOC that paid for a new roof qualifies. The same HELOC used to pay off credit cards does not, even though your house is the collateral.
• You itemize. That only makes sense when mortgage interest, state and local taxes (up to $40,400), charitable gifts, and medical costs above 7.5% of AGI add up to more than your standard deduction.

Example: married filing jointly, $190,000 of wages, $28,000 of mortgage interest on a loan under the $750,000 limit, and $14,000 of state income and property taxes. Itemized deductions total $42,000, which beats the $32,200 standard deduction by $9,800.

Taxable income lands in the 22% bracket either way, so itemizing saves about $2,156 (22% of $9,800).

• Form 1098: your lender sends it by January 31 if you paid $600 or more of interest. Box 1 shows the interest, Box 5 the mortgage insurance premiums.
• Schedule A, line 8a: interest reported on Form 1098 goes here.
• Records: keep the Form 1098. For a home equity loan or a cash-out refinance, also keep receipts showing the money went into the home.