Can You Deduct Interest on a Mortgage? | 2024 Tax Year Guide

Owning a home comes with plenty of benefits, such as equity, stability, and the flexibility to use proceeds from a sale toward your next property.

But you don’t have to wait to reap the perks of ownership. One of the biggest advantages is the mortgage interest deduction, which can help reduce your taxable income.

In this article (Skip to...)

• What is the mortgage interest deduction?
• Who qualifies for the deduction?
• How to claim the deduction on your 2024 tax return?
• Changes to the deduction in 2024
• What homeowner expenses aren’t tax deductible?

What is the mortgage interest deduction?

The mortgage interest deduction allows homeowners to deduct the interest they pay on their home loans. It reduces the amount they owe in taxes, meaning they’re able to keep more of their money or get a bigger refund.

This can benefit those with large mortgages and/or higher mortgage rates.

When making a mortgage payment, not all of it goes toward your loan balance. A portion also covers interest, which is the fee your lender charges for borrowing the money. In the early years of your loan, most of your payment goes toward interest rather than the principal. This can result in paying thousands in interest each year, which is why some homeowners claim the mortgage interest deduction at tax time.

For example, if you paid $12,000 in mortgage interest in a year, you could potentially deduct that amount from your income, reducing your overall tax burden. It allows you to save money while still building equity and enjoying the stability that comes with homeownership.

Who qualifies for the deduction?

To claim the mortgage interest deduction, your mortgage must be secured by your home, and you must be the homeowner.

If you’re a joint owner, both you and the other person (whether married or unmarried) can claim a deduction for your share of the expense. So if you and the co-owner each pay half of the mortgage, you can each deduct half of the mortgage interest.

The amount of mortgage interest that’s deductible depends on when you took out the loan. If your mortgage was before December 15, 2017, you can deduct interest on up to $1 million in mortgage debt. For loans taken out after that date, the limit is $750,000. If you’re married and filing separately, the limit is $375,000.

This cap applies not just to traditional mortgages, but to all mortgage-related debt like home equity loans and home equity lines of credit.

Additionally, the deduction only applies to primary homes and secondary residences. It can’t be used for investment properties.

To qualify, you must also itemize your tax return (list individual deductions on your tax return instead of taking the standard deduction).

How to claim the deduction on your 2024 tax return?

Claiming the mortgage interest deduction on your tax return is a fairly straightforward process.

First, you’ll need to wait for your lender to provide Form 1098, which details how much you paid in mortgage interest over the year. Most mortgage companies mail this form or make it available for download through your online account. It typically includes not just your mortgage interest, but also amounts paid for property taxes and mortgage insurance.

Since you must itemize your tax return to claim this deduction, you’ll need to fill out Schedule A (Form 1040) and list your itemized deductions, including mortgage interest.

However, before deciding to itemize, you should take a look at your itemized deductions as a whole.

If your itemized deductions - including mortgage interest, property taxes, and other eligible expenses - don’t add up to more than the standard deduction, you may get a bigger tax break by simply taking the standard deduction.

A tax professional can help you compare both options and determine which approach will maximize your tax savings.

Changes to the deduction in 2024

One way to determine whether to itemize or take the standard deduction is to familiarize yourself with the 2024 standard deductions, which are adjusted for inflation.

For 2024, the standard deduction is:

• $14,600 for single filers and married couples filing separately
• $21,900 for heads of household
• $29,200 for married couples filing jointly

For many people, the standard deduction is the better option. However, if you have a higher mortgage interest rate, meaning more of your payment goes toward interest, itemizing and taking the mortgage interest deduction might save you more money.

It’s also important to keep up with other recent tax changes. For example, you can no longer deduct mortgage insurance premiums on your tax return (this deduction expired at the end of 2021).

Additionally, if you have a home equity loan or home equity line of credit (HELOC), you can only deduct the interest if the funds were used to buy, build, or substantially improve the property. The loan must also be tied to your primary home or a second home to qualify for the deduction.

What homeowner expenses aren’t tax deductible?

Keep in mind that while the mortgage interest deduction can lead to significant savings if you itemize, many other home-related expenses aren’t deductible. This includes home improvements.

Generally, costs for remodeling, painting, or upgrading your home aren’t tax-deductible. The exception is if the improvement qualifies as a capital improvement under IRS guidelines, meaning it adds significant value to your home or extends its lifespan. However, you can’t claim this deduction until you sell the home.

Another exception is medically necessary home improvements. If you install ramps, widen doorways, modify stairwells, or make other accessibility improvements due to medical necessity, you may be able to deduct these expenses.

Other non-deductible home costs include:

• Mortgage principal payments
• Homeowners insurance
• Utility bills

If you’re self-employed and work from home, you may be eligible to deduct a portion of your mortgage interest, rent, maintenance, repairs, and utilities. The deductible amount, however, depends on the percentage of your home’s square footage used exclusively for business purposes. This is known as the home office deduction.

The bottom line

The mortgage interest deduction is one of the biggest tax advantages for homeowners, helping reduce their taxable income and resulting in a bigger refund. But to qualify, your mortgage must be eligible, and you must itemize your tax return. A tax professional can help you figure out how to maximize your savings and take full advantage of the mortgage interest deduction.