What is a Mortgage Interest Deduction?

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  • Written By: A. Gabrenas
  • Edited By: Jacob Harkins
  • Last Modified Date: 09 March 2020
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A mortgage interest deduction is a special U.S. federal tax deduction that generally allows eligible homeowners to reduce tax liability by a portion of the amount they paid toward interest on a home mortgage in a given tax year. This type of deduction is a benefit primarily to people who pay more in mortgage interest than the set standard deduction for a particular tax year and who are willing to file an itemized tax return. There are numerous rules governing who qualifies for this deduction, including those related to the type and amounts of the mortgage.

In general, a monthly mortgage payment includes a portion of money that goes toward paying the principle balance of the loan and paying the interest due on the loan. A home mortgage interest deduction targets this latter part of a mortgage payment, though other sources of mortgage interest, such as points paid during the purchase of a home, may also qualify in some cases. The amount that a mortgage interest deduction reduces a person’s tax liability is only a percentage of the actual interest paid, usually corresponding to a person’s tax bracket percentage. For example, if a person who qualified for the deduction was in a 25% tax bracket and paid $8,000 U.S. dollars (USD) toward mortgage interest in a given year, his or her tax liability would be generally reduced by $2,000 USD by taking the mortgage interest deduction.


To receive this deduction, qualified individuals must itemize their deductions on their federal income tax forms. This makes a mortgage interest deduction beneficial primarily for people whose total allowable deductions, including mortgage interest, exceed the standard deduction amount allotted to those who do not itemize. For example, if the standard deduction for a married couple in a particular tax year was $11,400 USD and the household paid $14,000 USD in mortgage interest that year, this would typically reduce tax liability by a greater amount by itemizing taxes and taking a mortgage interest deduction.

There are numerous rules regarding who is eligible for a mortgage interest deduction. In general, the deduction applies only to primary mortgages and home equity loans on main residences and second homes that people reside in for at least a portion of the year. Within this set, there is usually a maximum limit on the interest that can be claimed, the exact amount of which may vary based on the details of the mortgage and the tax year in which the interest was paid. For home equity loans, also known as second mortgages, a mortgage interest deduction can also usually be applied only to the amount used to actually improve the home covered by the mortgage.



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