Mortgage Interest Tax Deduction: How It Works in 2026

The mortgage interest deduction (MID) lets homeowners who itemize deduct interest on up to $750,000 of home acquisition debt — $1 million if the mortgage was taken out before December 15, 2017. The catch: since the Tax Cuts and Jobs Act nearly doubled the standard deduction, most homeowners today come out ahead by taking the standard deduction and skipping the MID entirely.

For tax year 2026, the standard deduction is $15,750 (single) / $31,500 (MFJ) per IRS Rev. Proc. 2025-32. The MID matters most for buyers of higher-priced homes, borrowers in high-property-tax states, and anyone whose combined deductions clearly clear that bar.

This guide covers current rules, a worked example, HELOC and points treatment, and how the 2025 SALT cap changes the math. This article is educational only and does not constitute tax advice. Tax laws change annually — always consult a licensed tax professional or CPA.

Key Takeaways

• Deductible interest caps at $750,000 of acquisition debt (post-Dec 15, 2017 loans) or $1 million (grandfathered pre-2017 loans).
• Only itemizers benefit. For 2026, the standard deduction is $15,750 (single) / $31,500 (MFJ) / $23,625 (HoH) — so many modest-mortgage homeowners still take the standard.
• HELOC and home-equity-loan interest is deductible only if funds were used to buy, build, or substantially improve the same home.
• Purchase-loan points are usually deductible the year paid; refi points must be amortized.
• The OBBBA raised the SALT cap from $10,000 to $40,000 for 2025–2029 (with income phaseouts) — changing when itemizing wins in high-tax states.

The Short Answer for 2026

Yes, mortgage interest is still deductible in 2026 — the TCJA rules from 2018 largely remain in place. What changed is the standard deduction it competes with. Roughly 90% of taxpayers now take the standard.

If your balance is under about $400,000 and you don't have unusually high state and local taxes or charitable giving, the standard likely wins. Closer to $750,000 or in a high-tax state, itemizing may pull ahead. Run the numbers both ways — or have a CPA do it. For how interest fits into the total cost of homeownership, see the anatomy of a mortgage payment.

What Is the Mortgage Interest Deduction?

The MID is an itemized deduction on Schedule A that reduces taxable income by the amount of qualifying home-loan interest paid during the year. It applies to interest on "home acquisition debt" — a mortgage used to buy, build, or substantially improve a qualified home — plus, in limited cases, home equity debt used the same way. It's a deduction, not a credit: in the 22% bracket, $10,000 of deducted interest saves about $2,200. Full rules: IRS Publication 936.

Current Rules Under the TCJA

The Tax Cuts and Jobs Act of 2017 rewrote the MID for loans originated on or after December 15, 2017. The rules for tax year 2026:

• Acquisition-indebtedness cap: Interest deductible on the first $750,000 of debt used to buy, build, or substantially improve a qualified home ($375,000 MFS).
• Grandfather clause: Pre-Dec 15, 2017 loans keep the older $1 million cap ($500,000 MFS), preserved on refi only up to the balance being refinanced.
• Second home: Primary plus one qualified second home, subject to the combined cap.
• Home equity debt: HELOC/home-equity-loan interest deductible only if funds went to buy, build, or substantially improve the same residence.
• Standard-deduction gate: Only helpful if total itemized deductions exceed the standard.

"Acquisition indebtedness" means a mortgage secured by a qualified residence and used to buy, build, or substantially improve it. A $500,000 purchase loan qualifies. A $50,000 cash-out to remodel the kitchen qualifies. A $50,000 cash-out for a car or credit-card debt doesn't.

Deduction Caps by Origination Date

Source: IRS Publication 936. Grandfathering rules are unforgiving if you've refinanced — confirm with a CPA.

Only Itemizers Benefit — Standard vs. Itemized

Every tax year you pick one: the flat standard deduction, or itemize by summing mortgage interest, SALT, charity, and other qualifying items on Schedule A. Whichever is larger wins. The MID only saves money to the extent itemizing exceeds the standard.

For 2026 filings, the standard deductions per IRS Rev. Proc. 2025-32 are: Single $15,750 / MFJ $31,500 / MFS $15,750 / HoH $23,625. Taxpayers 65+ or blind get additional amounts. These are inflation-adjusted annually — cross-check the current-year Rev. Proc.

Illustrative only. Actuals depend on loan balance, rate, filing status, state tax burden, and giving — talk to a CPA.

Worked Example: $400,000 Mortgage at 7%

Here's what "itemizing wins" looks like. For context on the rate, see how your mortgage rate is set; for full amortization, see monthly payment on a $400k loan.

Setup: $400,000 loan, 30-year fixed at 7.0%, MFJ, moderate-tax state. Year-1 interest ≈ $27,750. Property taxes $6,500 + state income tax $5,500 = $12,000 SALT (capped at $10,000 pre-OBBBA). Charity $2,500.

• Itemized Schedule A total: $27,750 + $10,000 + $2,500 = $40,250
• Standard deduction (MFJ 2026): $31,500

Itemizing wins by $8,750 of taxable-income reduction. In the 22% bracket, that's about $1,925 in actual federal tax savings — real, but far less than the $27,750 headline interest suggests.

Flip the loan to $200,000: year-1 interest ≈ $13,900. Itemized total = $26,400. Under the $31,500 standard — standard wins, MID saves nothing.

Takeaway: on a $400k+ loan in the early years, itemizing often beats standard. On a smaller loan like $200k or $300k, or in later years when interest has amortized down, the standard usually wins.

How SALT and the OBBBA Cap Change the Math

The state and local tax (SALT) deduction was capped at $10,000 by the TCJA in 2018, knocking many high-tax-state households out of itemizing. In 2025, the One Big Beautiful Bill Act (OBBBA) raised the SALT cap to $40,000 for tax years 2025–2029, with a phaseout for MAGI above roughly $500,000. The cap reverts to $10,000 in 2030 unless Congress extends it. See the CRS brief on OBBBA SALT provisions.

Practically: high-tax-state households (California, New York, New Jersey, Illinois, Oregon, Massachusetts, and others) may now deduct up to $40,000 of SALT for 2025–2029. More households will cross the itemizing threshold. Above the phaseout, SALT relief phases down. The interactions with AMT and multi-state filing are exactly where a CPA earns their fee.

HELOC and Home Equity Loan Interest

Under the TCJA, HELOC and home equity loan interest is deductible only when the funds were used to buy, build, or substantially improve the same home securing the loan — the "trace of funds" rule. The IRS clarified this in an explicit newsroom release.

Keep records tracing funds to the qualifying use. Without documentation, the deduction can be disallowed on audit.

Second Homes and Vacation Properties

You can deduct interest on one qualified second home in addition to your primary, subject to the combined $750,000 (or grandfathered $1M) cap across both loans. A qualified second home is one you personally use for at least 14 days per year — or more than 10% of the days you rent it out, whichever is greater.

If personal use falls below that threshold, the property becomes a rental and interest moves from Schedule A to Schedule E under different rules. When evaluating a second home, factor in your home's current value and equity alongside the tax impact. Short-term rental rules get messy fast — a CPA who works with real-estate owners earns their fee here.

Discount Points and Origination Fees

Discount points are prepaid interest — a lump sum at closing in exchange for a lower rate. For when the trade-off is worth it, see buying down your rate with points and closing costs and points. Tax treatment per IRS Topic 504:

• Primary-home purchase: Points are generally deductible in full in the year paid if IRS tests are met (loan secured by main home, points customary in your area, computed as a percentage of loan, etc.).
• Refinance: Points must be amortized over the life of the new loan — $6,000 of points on a 30-year refi = about $200/year.
• Second-home purchase: Amortize over the loan life, even at purchase.
• If you refi again or sell: Unamortized points from an earlier refi may be deductible in the year the loan pays off. Confirm with a CPA.

Origination fees, underwriting fees, and most other lender costs are generally not deductible — they add to cost basis (which can reduce capital gains on sale) but don't hit Schedule A.

Refinancing and the Deduction

A rate-and-term refinance (no cash out beyond the existing balance) generally preserves the original loan's tax treatment — including grandfather status, up to the balance refinanced. A cash-out refi is trickier: the portion replacing the original loan keeps its acquisition-debt treatment, but the cash-out portion is deductible only if used to buy, build, or substantially improve the same home.

Points on a refi must be amortized; if you refi again before those points fully amortize, the remaining balance is generally deductible that year. See paying off your mortgage early — early payoff reduces deductible interest, but interest saved almost always outweighs the lost deduction.

What About PMI in 2026?

Private mortgage insurance premiums were deductible for many years, but the PMI deduction expired at the end of 2021 and has not been reinstated for tax year 2026. If you're paying PMI, focus instead on how PMI works and removing PMI once you hit 20% equity — that's where the real savings are. Watch for legislative changes.

How to Claim: Schedule A and Form 1098

1. Wait for Form 1098. Your servicer sends it by January 31, showing interest paid, points (if a purchase this year), and outstanding principal — see About Form 1098.
2. Verify. Check the interest against your December year-end statement.
3. Complete Schedule A. Mortgage interest on line 8a (reported on Form 1098) or 8b (not reported, e.g., seller-financed).
4. Attach to Form 1040 and keep records for at least three years — longer for cash-out refi documentation.

If you're financing with Opendoor Home Loans or any licensed lender, your servicer handles Form 1098 automatically.

Edge Cases and State Rules

• MFS: Each spouse can deduct interest on debt up to $375,000 (post-2017) or $500,000 (grandfathered). Both spouses must use the same method.
• Unmarried co-owners: Each deducts interest actually paid, up to their share of the combined cap.
• Multiple obligors: Only someone legally obligated and who actually pays the interest can deduct it.

State-level rules add another layer. California retains a $1 million acquisition-debt cap for state purposes — a Californian may deduct less federally than at the state level. Never assume federal equals state. See the California FTB Schedule CA instructions as a starting point.

Get personalized help from a CPA if you did a cash-out refi, have HELOC funds with mixed use, own multiple properties or a short-term rental, file MFS, are near the OBBBA SALT phaseout, or refinanced a grandfathered loan.

Disclosure

This article is for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws, deduction caps, and inflation-adjusted amounts change annually. Always consult a licensed tax professional, CPA, or Enrolled Agent for guidance on your specific filing. Figures cited reference IRS Publication 936 and Rev. Proc. 2025-32.

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