Can You Deduct Your Mortgage Interest When You File Your Taxes?

If you have a mortgage, you already know that you pay interest to your mortgage lender for the privilege of borrowing money for your home. Depending on how big your mortgage is, what your interest rate is, and where you are in your payment process, your interest costs could equal thousands of dollars every year.

As you send this interest money to your lender each month, you may be wondering if you can deduct the interest from your tax bill. And the answer is, it depends -- but in some cases you are able to do so.

Here's when you can deduct mortgage interest

If you pay interest on a mortgage loan for a primary residence or second home, you are typically allowed to deduct the interest costs from your taxable income when you file your tax return. You are allowed to deduct the full amount of interest on mortgages up to $750,000 or on mortgages up to $1 million if you had incurred the debt prior to Dec. 16, 2017.

If you file your taxes as married filing separately, the amount you can deduct is lower though. Under those circumstances, you are only allowed to deduct mortgage interest on loan amounts up to $375,000 or up to $500,000 if you obtained the loan before Dec. 16, 2017.

Your mortgage lender should send you a document called the Form 1098, Mortgage Interest Statement, which will detail the amount of interest that you paid over the course of the year. You can use this form when you are doing your tax preparation. Tax software will ask you for the information from the form if you're doing your own returns, or you can give the form to an accountant or tax professional who is helping you.

There's an important limitation in who can deduct mortgage interest

There is some potential bad news, though. You are only allowed to deduct mortgage interest if you itemize on your taxes. This means you do not claim the standard deduction but you instead claim a deduction for specific things (like for mortgage interest and for state and local taxes).

Since the standard deduction is $13,850 for single tax filters and $27,700 for married tax filers for the 2023 tax year (the year for which you'll be filing in 2024), you would need to have enough itemized deductions to add up to more than that amount in order for it to make any sense for you to itemize.

It's a lot more work to itemize since you have to provide details on specific transactions that qualify you for deductions -- and you'd never want to do it if you weren't getting more money taken off your taxable income as a result. Otherwise, you'd put in extra effort for less tax savings.

Because the standard deduction is so high, the vast majority of taxpayers just claim it instead of itemizing. In fact, IRS data showed that 87.3% of tax returns claim the standard deduction instead of itemizing in the 2020 tax year -- which means no mortgage interest would be deductible for close to 9 in 10 people filing returns.

Ultimately, you should not count on being able to deduct mortgage interest, even though it's allowed, unless you know you have lots of other deductions that justify itemizing. If you're one of the lucky Americans finding yourself able to itemize your taxes this year, it's nice to know you'll get this extra government help paying for your home.