Deduct Interest on Mortgage: An Ultimate Guide for Everyone

When it comes to mortgages, the United States tax code allows homeowners to deduct interest on the mortgage as part of their taxable income. 

In order to deduct mortgage interest, the home must be in use to either purchase, build, or substantially improve the property. The new law started in 2018 and aimed at making home ownership more affordable. 

This will change the way homeowners can deduct their mortgage interest. For now, homeowners can continue to deduct their mortgage interest as long as the mortgage was used to buy, build, or substantially improve the property.

What Is the Mortgage Interest Deduction?

You might be wondering: What is the mortgage interest deduction? It is a tax deduction you can claim to reduce your taxable income

The amount you can deduct is limited to seventy-five percent, or $1 million, depending on the year you bought your home. To take advantage of this tax break, you must itemize your deductions on your income tax return. Your mortgage servicer will send you a 1098 tax form, which will show how much interest you paid throughout the year.

To qualify for a mortgage interest deduction, your home must be a “qualifying home.” A home is a house, condominium, cooperative, mobile home, house trailer, boat, or another primary residence. 

Interest paid on a non-home mortgage can also be deductible if you used it for a business or investment. The mortgage interest for a second home must be for a separate property, though.

In addition to mortgage interest, you can deduct prepaid interest, also known as “mortgage points.” This can be the mortgage interest but it’ll be intact if it is part of your primary residence. 

Prepaid interest is considered part of the closing costs of a second mortgage, so you can only deduct the interest for the main residence. If you are looking for a cash-out refinance, you may be able to take advantage of this tax deduction if you are using the money you receive to make home improvements.

How Much Is the Mortgage Interest Tax Deduction Limit?

The limit on the mortgage interest tax deduction is seven hundred and fifty thousand dollars for a single taxpayer and $1,500,000 for a married couple filing jointly. The limit is based on the loan limit of $750,000 and the mortgage balance of $1,500,000, multiplied by 0.5. 

A homeowner who is paying the full amount of their mortgage on a rental property cannot take the deduction. The mortgage interest deduction is still there for the first $50,000 of home equity debt.

Mortgage interest is deductible in many ways. You can claim it as either interest or as a non-deductible expense. Before claiming the mortgage interest tax deduction, check your mortgage loan for any conditions. 

However, if you’ve recently refinanced a mortgage and accumulated equity, you can still take advantage of the higher limit. A married couple can take a combined standard deduction of $1 million, but they won’t be able to claim the maximum amount of mortgage interest, which is more than half the total amount of debt.

How the Mortgage Interest Deduction Works in 2022

The Background of Mortgage Interest Deduction

For more than a century, the mortgage interest deduction has allowed homebuyers to write off the interest, paid on their primary residence mortgage taxes. However, the rules on the deduction have changed over the years, with different administrations amending the rules. 

The recent tax reform, by former President Donald Trump, has changed who can take advantage of the deduction. Homebuyers who purchased their homes before Dec. 16, 2017, will still be able to claim the deduction on up to $1 million or $500k of mortgage debt.

In 2022, however, the mortgage interest deduction is no longer a benefit for homebuyers, as mortgage rates will continue to dip lower than in previous years. Because mortgage rates remain at historically low levels, homebuyers didn’t need tax incentives to purchase a home. 

How it Works

While filing jointly will still allow spouses to claim half of the mortgage interest deduction, the rules for singles will be stricter. 

The single spouse will only be able to claim half of the deduction if the mortgage was obtained before the divorce. If a married couple files separately, the mortgage interest deduction will be at two-thirds of the total debt.

Whether you will qualify for the mortgage interest deduction depends on the type of loan you take out. It also depends on the financial status of your partner. If you don’t itemize your deductions, your mortgage interest will be deductible as ordinary expenses. 

The maximum deduction for mortgage interest is currently at one million dollars, so making a mortgage with a lower interest rate will lower your taxable income

If you don’t itemize your deductions, however, you may want to consider the mortgage interest deduction when deciding whether to purchase a new home.

It also helps homeowners make more money since they’re only paying taxes on the first six-hundred thousand dollars of mortgage debt. A mortgage interest deduction calculator can help you estimate how much money you can save each year by claiming this deduction.

Home mortgage interest deduction has been a part of the tax code for over a century. Many believe it increases homeownership, but research suggests that the HMID actually raises housing costs by increasing demand.

Prior to TCJA, the tax code treated saving in owner-occupied housing neutrally, so that mortgage interest deductions were tax-deductible and capital gains in owner-occupied housing largely untouched.

What Loan Does Qualify for a Mortgage Interest Deduction?

What loans qualify for a mortgage interest deduction? There are a few things to keep in mind when you’re calculating your mortgage interest deduction. 

The amount of your mortgage debt cannot exceed $800,000. In addition, the deduction only applies to home equity debt. Previously, you could deduct interest on up to $100,000 of home equity debt. However, after 2018, the amount is capped at $800,000.

Interest on a Mortgage for Your Main Home

A mortgage interest deduction is available for the interest you pay on your home equity loan. This is also applicable to second mortgages, home equity lines of credit, and home equity lines of credit, not used to purchase your main home. 

While almost any home mortgage can qualify for a mortgage interest deduction, the amount of the deduction varies depending on the date of the mortgage, the amount, and how the money was used. 

In most cases, if a mortgage falls into one of these categories, the interest on it can be fully deductible. 

However, if a mortgage falls into more than one of these categories, it must be added to other debt in the same category.

Interest on a Mortgage for Your Second Home

If you own a second home listed as collateral for a mortgage, you can deduct interest on the loan. This deduction is only available for a second home that you live in at least ten percent of the time. 

Renters cannot deduct mortgage insurance premiums. You can only deduct the interest on one home. It is important to understand that mortgage insurance is not deductible on the first home.

The IRS allows homeowners to deduct the interest on a second home mortgage if they meet certain requirements and follow current federal tax guidelines. 

Second mortgage interest may only qualify for a deduction if it is used for home improvements. The deduction is limited to a portion of the debt, so it is important to check with a tax professional or financial advisor. 

Points You Paid on Your Mortgage

Points you pay on your mortgage can be deductible if you itemize your deductions and make a down payment greater than the points. 

However, if you don’t itemize, the points may not qualify as a deduction. 

First, you have to calculate the amount you paid as a percentage of the loan amount. For example, if you paid one point on a $100,000 mortgage, you would deduct one thousand dollars from your taxable income. 

Second, you have to make sure that the points you paid on your mortgage are listed on your settlement statement as “points.” Otherwise, you could have them listed as loan origination points or discount points, which aren’t tax-deductible.

Points are fees you pay upfront to lower your interest rate. They are 1% of the loan amount, and one point equals $1,000. So, if you pay two hundred thousand dollars on a $250,000 loan, you’ll deduct two hundred and twenty-five points. 

The more points you pay, the lower your interest rate will be. Points are deductible over the entire term of the loan, not just the year you paid them. However, you have to make sure that the points you paid are part of a legitimate practice in your area.

Late Payment Charges on a Mortgage Payment

In some cases, late payment charges on a mortgage payment are deductible as home mortgage interest. These charges, however, must not be related to a specific service provided. 

To determine whether a late payment charge qualifies, use your TaxAct account and select the Federal tab from the upper left-hand corner. Once there, you should see the deduction amount. If not, you can choose another payment method to deduct your late payment charges.

For the most part, a mortgage interest deduction is not a tax credit. It is a reduction in your taxable income that is a fraction of the mortgage interest paid. 

Late payment charges on a mortgage payment, for example, do not qualify for the deduction. In order to claim a deduction, your payment must be in your name. If you pay the mortgage off yourself, the mortgage interest will not be deductible.

Points reduce the cost basis of the home for the buyer. Points are reported by the lender on Form 1098. If you have questions about whether late payment charges on a mortgage payment qualify for a mortgage interest deduction, check with your tax adviser.

Prepayment Penalties

When filing your taxes, you can claim your mortgage interest and any prepayment penalties you have paid. 

In some cases, these fees qualify for a tax deduction because they are considered a current expense in the context of your particular business, such as mortgage trading. In some cases, they qualify as an expense if you can prove that you paid the penalty within the first two years of the loan. 

However, in some cases, a prepayment penalty will not qualify as a mortgage interest deduction.

When refinancing, many homeowners opt to roll their prepayment penalties into the principal balance of the new loan. Thus, a $4,000 prepayment penalty would finance $154,000 at closing. 

While refinancing may make sense, it has tax implications. You cannot claim your prepayment penalty if you refinance. This decision will require you to itemize your expenses. 

However, if you refinance your loan and decide to take a prepayment penalty, you must ensure that you itemize all your mortgage interest deductions.

In addition to the mortgage interest, you can also deduct points, mortgage prepayment penalties, and late payment fees. 

As long as you have a mortgage, these expenses can be deducted if you use the money for home improvements. In some cases, points and prepayment penalties are also eligible for mortgage interest deductions. 

It is best to consult with your tax professional to make sure you are claiming the correct deduction.

Interest on a Home Equity Loan

If you’re considering applying for a home equity loan, you should be aware that there are some rules that must be followed. For one, you can only deduct the interest on home equity loans if the loan is used to make substantial improvements to your home. 

The loan must also be used for home improvement projects – not for personal expenses, such as consolidating credit card debt or putting money away as an emergency fund.

If you’re planning to apply for a home equity loan, make sure that the property is your primary residence. If you’re planning on relocating, the amount of the home equity loan you’re applying for isn’t as large as a loan for a million dollars. 

But if you’re renovating your primary residence, you can use the proceeds to make improvements in your home. The interest you pay on an older mortgage may not qualify for a deduction, but you can deduct the interest on a loan up to $250,000.

You can still deduct interest on a home equity loan up to the limit set by the government. But keep in mind that you must itemize your income to qualify for this deduction.

If you have a high income and earn less than the maximum limit, you might qualify to deduct only part of the interest. This is called the HELOC deduction. 

You should itemize your home equity loan and home equity line of credit to maximize your tax benefits.

Mortgage Insurance Premiums

If you have a home loan with less than 20% equity, you are required to purchase mortgage insurance, also known as PMI. 

You pay this premium every month if you don’t make enough money to cover the loan. It typically costs about $30-70 per $100,000 of the loan balance, and the monthly premium is deducted from your income tax return. If you itemize your deductions, the premium is deductible.

If you’re a first-time home buyer, it may be helpful to check with your lender to see if your premiums are deductible. 

Mortgage insurance premiums are typically allocable to a period beginning after the end of the tax year and are treated as expenses during the period they’re allocated. 

For mortgages with higher interest rates, mortgage insurance premiums must be allocated to a shorter term than the loan’s term. Prepaid interest on a mortgage that was paid off before the end of the term is not deductible.

There are some additional restrictions that apply to this deduction. Generally, if you have more than $100,000 in income, you can’t deduct the premiums. 

However, if you earn less than $109,000, you can deduct the premiums on line 8b of Form 1040-SR. Mortgage insurance premiums are not deductible if you have a higher income than those listed above. If you make over $100,000, you have to take additional steps to claim your mortgage insurance deduction.

What Does Not Qualifies as Deductible Mortgage Interest?

Here is certain mortgage interest that does not qualify as tax-deductible: 

  1. Homeowners insurance
  2. Principle amount
  3. Interest paid on an unsecured loan.
  4. Title insurance
  5. Deposits, down payments, or earnest money you forfeited
  6. Interest accrued on a reverse mortgage.
  7. Extra principal payments on the mortgage

How To Claim The Mortgage Interest Deduction On Your 2022 Tax Return

The changes to the mortgage interest tax deduction may affect you if you have a new mortgage. The deduction applies to new mortgages only. This means that you must make your payments on time to be eligible. 

Make sure to keep good records, choose the correct tax forms, and keep all relevant documents. Hopefully, this article has been helpful in preparing for your 2022 tax return.

Look in your mailbox for Form 1098

When you have a mortgage, you can claim the mortgage interest deduction on your tax return if you received a Form 1098. You can access this form through your bank’s Online Banking service. 

Simply click on the Statements & Documents tab and then click on the 1098 form link. You must receive the form by February 15 to be eligible.

To claim the mortgage interest deduction on your 2022 federal income tax return, you must have a copy of Form 1098 from your mortgage lender or mortgage servicer. The form lists the interest you paid during the year.

You do not have to file the Form 1098, but you must indicate how much of that interest you paid on your tax return. Whether you itemize deductions or not, you must report the interest.

Choose for a Standard Deduction

When claiming mortgage interest as a deduction on your 2022 tax return, you must know that the maximum amount of the deduction is only available to homeowners who itemize their deductions. 

This is because the standard deduction for 2022 is $12,950 for married couples and $25,900 for single filers. This is because claiming mortgage interest as a deduction requires a lot of documentation and additional forms. Fortunately, you can choose for a Standard Deduction in 2022.

While the standard deduction is larger than it was before the Tax Cuts and Jobs Act, the mortgage interest deduction is still a valuable tax break for many people. And if you purchased your home in 2022, you can still deduct up to $20,000 in mortgage interest on your tax return.

However, if you plan to itemize your deductions, you must remember that any mortgage interest paid before the purchase date is considered rent.

Keep Good Records

Depending on your circumstances, you may be able to deduct your mortgage interest on your 2022 tax return. If you purchased a new home in 2018, you must have owned it for a full year in order to take the deduction. 

If you purchased a home in 2018 but used the proceeds of the loan to make improvements, you may qualify for a credit for the interest paid on the loan.

The IRS defines a home as a house, condominium, cooperative, mobile home, recreational vehicle, or boat. For these purposes, you must be the primary borrower who is legally obligated to make the payments. Additionaly, you should be the only person who can claim the deduction. 

If you are married, you must file jointly with your spouse if both are filing separate returns. 

However, if you and your spouse have joint loans, you can deduct the mortgage interest on your 2022 tax return. However, you need to prove that you have a co-signer.

Choose The Correct Tax Forms

The first step to claiming the mortgage interest deduction on your 2022 tax returns is to determine if you qualify for it. 

If so, you will need to file the proper tax forms. In the United States, mortgage interest is deductible if it was paid on a qualifying property. 

If you are married, you can deduct interest on both your main home and your second home. However, you must get written consent from your spouse to claim both. Then, fill out the correct tax forms for the specific types of home mortgage interest.

The deduction is limited to home loans, such as a mortgage or home equity loan. However, homeowners who took out a second mortgage or home equity loan can take advantage of the deduction. 

Likewise, those who bought a home before Dec. 16 can take the mortgage interest deduction on the first $1 million of mortgage debt they owe. You must have a home loan that qualifies for the deduction.

See if You Qualify for Special Deduction Rules

If you are planning to itemize deductions on your next tax return, check the special mortgage interest deduction rules. 

This deduction will reduce your tax bill and helps you avoid having to pay additional interest on your mortgage. There are several forms to fill out and different amounts that you can deduct. 

However, it can get confusing if you don’t know what you’re doing. The IRS has made this process easier with an extensive guide to mortgage interest deductions.

If you paid private mortgage insurance, you can deduct the premiums on your 2021 tax return. This deduction is also there for low-down payments and will phase out after a certain amount of time. 

Check Box 5 on Form 1098 to see if you qualify for this deduction. The amount of premiums you paid is deductible for married couples. To deduct the full amount of your mortgage interest, itemize your deductions to get the full tax benefit.


So, these are the ways to deduct interest on mortgage. Hope, the post was able to clarify whatever doubts you had. If it did, please feel free to share this. In case, you feel, we missed something, go ahead share that with us using the comments section below.

Disclaimer: This article is not a legal, tax, or accounting advisor. Readers should seek professional advice if they have specific tax issues.

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