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Mortgage Interest Deduction & Points

Difficulty Intermediate Risk None Applies To All Potential Savings $2,000 - $15,000+ per year Last Verified 2026-03-01

Mortgage Interest Deduction & Points

What Is It?

The mortgage interest deduction allows homeowners to deduct the interest paid on loans secured by a qualified residence (your primary home and one second home) from their federal taxable income. Under the Tax Cuts and Jobs Act of 2017 (TCJA), the deduction is capped at interest on up to $750,000 of “acquisition debt” — debt used to buy, build, or substantially improve a qualified home — for loans originated after December 15, 2017. The One Big Beautiful Bill Act (signed July 4, 2025) made this $750,000 cap permanent, eliminating the pre-TCJA $1 million limit that would have returned after 2025. Additionally, points paid at closing to obtain a mortgage are often deductible, sometimes in full in the year paid — and this is a deduction millions of homeowners miss entirely.

How It Works

Step 1: Determine Your Acquisition Debt Balance

Your deductible interest is limited to the portion of your loan that counts as “acquisition debt” — the amount you borrowed to buy, build, or substantially improve the home. If your original purchase mortgage was $600,000 and you later took a cash-out refinance that pushed the balance to $800,000, only the interest on the original $600,000 qualifies (and even that is subject to the $750,000 cap). Grandfathered loans originated on or before December 15, 2017 may use the old $1,000,000 limit.

Step 2: Calculate the Deductible Interest

Your lender sends IRS Form 1098 by January 31 each year showing the total mortgage interest you paid. If your loan balance is under $750,000 throughout the year, the entire amount shown on the 1098 is potentially deductible. If your balance exceeds $750,000, you must calculate the deductible portion: multiply total interest paid by ($750,000 / average loan balance). IRS Publication 936 contains Worksheet 1 for this calculation.

Step 3: Deduct Points Paid on a Home Purchase

“Points” (also called loan origination fees or discount points) are prepaid interest. One point equals 1% of the loan amount. Points paid on a new mortgage to purchase your principal residence can be deducted in full in the year you paid them, provided all of the following IRS criteria are met (per IRS Topic 504):

  • The mortgage secures your principal residence
  • Paying points is an established business practice in your area
  • The points were not paid in place of other fees (appraisal, title, attorney)
  • The points were computed as a percentage of the loan principal
  • You used the cash method of accounting
  • The funds you provided at closing (down payment + closing cash) were at least equal to the points charged

For example: You buy a home for $500,000, take a $400,000 mortgage, and pay 1 point ($4,000). All criteria met — you deduct the full $4,000 on Schedule A in the year of purchase.

Step 4: Deduct Points Paid on a Refinance

This is where most homeowners leave money on the table. Points paid to refinance a mortgage cannot be deducted in full in the year paid. Instead, they must be amortized (deducted ratably) over the life of the new loan. For a 30-year refinance with 360 monthly payments, you divide total points by 360 and deduct that amount for each payment made during the year. Exception: if part of the refinance proceeds were used to substantially improve your principal residence, the portion of the points attributable to those improvements can be deducted in the year paid.

Critical refinance wrinkle: If you refinance again before paying off the current loan, you can deduct all remaining unamortized points from the old refinance in the year the new refinance closes — but only if you refinance with a different lender. If you use the same lender, you must add the unamortized balance to the new loan’s points and amortize them over the new term.

Step 5: Check Whether You Should Itemize

The mortgage interest deduction is only available if you itemize on Schedule A instead of taking the standard deduction. For 2025, the standard deduction is $15,000 (single) and $30,000 (married filing jointly). For 2026 it is $15,750 (single) and $31,500 (MFJ). If your total itemized deductions — mortgage interest + property taxes (capped at $10,000 SALT under TCJA, though a temporary increase to $40,000 was enacted under the One Big Beautiful Bill Act starting 2025) + charitable contributions + other deductions — exceed the standard deduction, you benefit from itemizing. Many homeowners in their early loan years (when interest is highest) will benefit from itemizing; those later in the loan term (when most payments are principal) may not.

Step 6: Home Equity Loan and HELOC Interest

Post-TCJA, interest on a home equity loan or line of credit is only deductible if the loan proceeds were used to buy, build, or substantially improve the home that secures the loan. If you used a HELOC to pay off credit cards or fund a vacation, the interest is not deductible. If you used the funds to add a new room or renovate a kitchen, the interest is deductible — but only to the extent your total acquisition debt (original mortgage + HELOC) stays within the $750,000 cap.

What Most People Don’t Know

  • Points on a purchase mortgage are fully deductible in Year 1. Most homeowners assume points are always spread over the loan life. They are not — purchase points on a principal residence qualify for immediate full deduction, which can be worth thousands of dollars in the first tax year.
  • Unamortized refinance points are deductible when you sell or refinance again. If you refinanced in 2020 (paying 1 point on a $500,000 loan = $5,000) and sell the home in 2026 having deducted only $833 over 6 years, you can deduct the remaining ~$4,167 in the year of sale.
  • The $750,000 cap is per return, not per person. Married filing jointly gets $750,000. Married filing separately each gets $375,000 — often a significant disadvantage.
  • Seller-paid points are also deductible by the buyer. If the seller paid your points as part of the deal, you can still deduct them as if you paid them yourself (the seller reduces their sale price for their own tax purposes).
  • The SALT cap increase matters. The One Big Beautiful Bill Act (2025) temporarily increased the SALT deduction cap from $10,000 to $40,000 for taxpayers under $500,000 AGI (phasing down above that), significantly increasing the value of itemizing for homeowners in high-tax states.

Who Benefits Most?

  • Homeowners in the first 10 years of a large mortgage, when most of the payment is interest
  • Homeowners in high-tax states (New York, California, New Jersey) who now benefit from the increased SALT cap
  • Anyone who paid substantial points at closing — each point on a $750,000 loan is $7,500 in potentially fully deductible prepaid interest
  • Self-employed borrowers who paid lender fees structured as points
  • IRC § 163(h)(3) — Defines “qualified residence interest” and sets the acquisition debt limit at $750,000 ($375,000 MFS)
  • IRC § 163(h)(3)(F)(i)(II) — TCJA amendment reducing the limit from $1,000,000 to $750,000 for loans after December 15, 2017
  • IRS Publication 936 — Home Mortgage Interest Deduction — the authoritative IRS guide for calculating deductible interest, including worksheets for loans over the limit
  • IRS Topic No. 504 — Home Mortgage Points — IRS guidance on when points are deductible in full vs. amortized
  • IRC § 461 — General rules for timing of deductions (cash method allows current-year deduction of points)
  • Economic Growth, Tax Relief, and Reconciliation Act of 2001 — preserved home equity interest rules later modified by TCJA

Frequently Asked Questions

Can I deduct all the mortgage interest shown on my Form 1098?

If your loan balance was under $750,000 throughout the year, yes — the full amount on your 1098 is potentially deductible. If your average balance exceeded $750,000, you must prorate the deductible interest using the worksheet in IRS Publication 936. Loans originated before December 16, 2017 use the older $1,000,000 cap.

I paid points when I bought my home — can I deduct the full amount this year or do I have to spread it out?

Points paid on a mortgage to purchase your principal residence can be deducted in full in the year you paid them, as long as the IRS criteria in Topic 504 are met (the mortgage secures your primary home, the points are computed as a percentage of the principal, and your cash at closing covered the points). Points paid on a refinance must be amortized over the life of the loan instead.

Is it worth itemizing to claim the mortgage interest deduction, or should I just take the standard deduction?

You only benefit from itemizing if your total deductions on Schedule A exceed the standard deduction ($15,750 single / $31,500 married filing jointly for 2026). Add up your mortgage interest, property taxes (up to the SALT cap), charitable donations, and other deductibles. Early in a large mortgage — when interest charges are highest — itemizing typically wins; later in the loan term, it often doesn’t.

I used a HELOC to pay off credit card debt — is that interest deductible?

No. Post-TCJA, home equity loan and HELOC interest is only deductible if the funds were used to buy, build, or substantially improve the home securing the loan. Using a HELOC for personal expenses like debt consolidation or vacations produces non-deductible interest, regardless of what the loan is secured against.

I refinanced in a prior year and paid points — can I still deduct those?

Yes, but they must be amortized over the remaining life of the refinance loan. If you refinanced again or sold the home, you can deduct all remaining unamortized points from the old loan in the year of the new refinance or sale (with a caveat: if you refinanced with the same lender, you must add the unamortized balance to the new loan’s points and continue amortizing).

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