Home Mortgage Interest Deduction

In 2024, we have seen mortgage rates stay at a much higher level than in recent history. Comparing a 6%+ mortgage rate in 2024 to a low 3% mortgage rate from 2020-2021 can be disheartening, especially when you see a majority of your payment going toward interest. But there is hope! Did you know if you itemize your tax deductions, the IRS allows a home mortgage interest deduction on your tax return? 

What is the home mortgage interest deduction? For homeowners whose mortgage originated after 2017, you can deduct home mortgage interest on the first $750,000 of indebtedness. For mortgages that originated before 2017, up to $1,000,000 of indebtedness can be deducted. Interestingly, this is a combined total, applicable to both your main home and a second home. There are exceptions for some less-common mortgage types and rental properties, but as long as your home is a qualified home, as defined by the IRS, this deduction should apply.

So, what is a qualified home? Per the IRS, a home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. If you have a travel trailer (with a kitchen and bathroom) this may qualify as a second home!

Additionally, if you have a home equity line of credit (HELOC), the interest is deductible to the extent the loan secured by your home is used to buy, build, or substantially improve your home.  

There are other nuances to this deduction that can increase the complexity, including buying points on your mortgage, homes under construction, renting the home, home offices, and other less common situations, so it is important to consult a tax professional before taking steps toward claiming this deduction.

The most important part of claiming the home mortgage interest deduction is you must itemize deductions on your tax return. So, the benefit of the home mortgage interest deduction does not automatically apply to everyone. Generally, a single itemized deduction might not be enough to overcome the standard deduction of $14,600 for single filers and $29,200 for married filing jointly in 2024. However, the high interest rate environment of the past couple years has potentially made this deduction relevant for many new homeowners.

Keeping track of itemizing deductions when filing taxes can be intimidating, but if you have recently become a new homeowner, it may be worth looking into. Other deductions that can help you get over the standard deduction threshold include, but are not limited to, medical and dental expenses, state and local income taxes paid, charitable giving, and real estate taxes. Have a discussion with a tax professional to help properly itemize your deductions and ease the stress of filing your taxes while making sure you have taken advantage of all possible deductions the IRS has made available.

-Jordan McAteer, Tax Professional, Smitson Erhart-Graves Tax Advisors