When tax season rolls around, deductions can feel like one of the few chances to lower your bill. For homeowners, the mortgage interest deduction often gets top billing—but it’s also widely misunderstood. Changes to the tax code and higher standard deductions mean far fewer households benefit than they once did, and the savings aren’t always as large as people expect.
Below, we dive into how the mortgage interest deduction works, who qualifies, and the applicable limits. While it’s unlikely to be a major tax windfall, understanding the rules can help you make informed decisions about your mortgage and your taxes—without relying on guesswork.
How Mortgage Interest Reduction Works
Mortgage interest is what your lender charges you for borrowing money. Interest charges are separate from the principal (the actual loan balance).
In some cases, you can subtract the amount spent on mortgage interest from your tax bill. This isn’t a direct refund, and it won’t reduce your mortgage bill, but it will reduce your taxable income. In practice, that means you might have a lower tax bill.
Since the mortgage interest deduction requires itemizing, contributions to retirement accounts, HSAs, and FSAs often provide greater tax savings—especially for households that take the standard deduction.
Mortgage Interest Deduction Limits for 2026
The mortgage interest deduction isn’t unlimited. The IRS caps the amount of mortgage debt you can use to calculate deductible interest, and those limits depend on when your loan was taken out and how you file your taxes.
For most mortgages originated after December 15, 2017, you can deduct interest on up to $750,000 of qualified mortgage debt. If you’re married filing separately, the limit drops to $375,000.
Here’s how that plays out in practice: If you took out a $900,000 mortgage in 2020, you can only deduct the interest associated with the first $750,000 of that loan. Interest tied to the remaining balance isn’t deductible.
Loans on or before December 15, 2017
Older mortgages follow different rules. If your loan was originated on or before December 15, 2017, you may be able to deduct interest on up to $1 million of mortgage debt ($500,000 if married filing separately).
That said, there are important caveats. Certain refinances or changes to the loan after the cutoff date can reduce—or eliminate—the higher limit, which is why reviewing your loan history matters.
How to Calculate Your Mortgage Interest Deduction
Here are the steps to calculate how much mortgage interest deduction you may be able to claim.
Step 1: Confirm You’re Itemizing Deductions
You can only claim the mortgage interest deduction if you itemize deductions rather than take the standard deduction. Itemizing means listing eligible expenses—such as mortgage interest, state and local taxes, and charitable contributions—instead of using the flat deduction amount set by the Internal Revenue Service.
If your total itemized deductions don’t exceed the standard deduction, itemizing won’t lower your tax bill—and the mortgage interest deduction won’t provide any benefit.
Step 2: Find Your Total Mortgage Interest Paid
Your mortgage lender sends you Form 1098 each year. This form shows how much interest you paid during the year. Look for the box labeled “Mortgage interest received.” This is your starting number, not your final deduction.
Step 3: Apply the Mortgage Interest Deduction Limit
Next, check whether your loan exceeds the mortgage interest deduction limit. For many loans, interest is only deductible on up to $750,000 of mortgage debt.
Step 4: Calculate the Deductible Portion (If Your Loan Is Over the Limit)
If your loan exceeds the cap, the IRS requires a proportional calculation. To do that, divide the deduction limit by your total mortgage balance, then multiply that percentage by the interest you paid.
Here’s how that looks for a $900,000 mortgage balance:
$750,000 ÷ $900,000 = 0.83 (83%). This means 83% of your mortgage interest is deductible.
Step 5: Calculate Your Deduction
Next, find the total mortgage interest you paid for the year on Form 1098. Now multiply that interest amount by the deductible percentage (if your mortgage is over the limit):
Total interest paid: $30,000
Deductible percentage: 83%
$30,000 × 0.83 = $24,900
In this case, $24,900 of your mortgage interest paid counts toward the maximum mortgage interest deduction. If your mortgage isn’t over the $750,000 limit, you can likely deduct the entire amount on Form 1098.
Putting Mortgage Interest Deductions in Perspective
The mortgage interest deduction is often more limited—and more situational—than many people expect. Between the mortgage interest deduction limit and the itemizing requirement, the benefit may be smaller than headlines suggest.
Understanding how the mortgage interest deduction works will help you set clearer expectations and see fewer surprises come Tax Day.
