Table of contents
Last reviewed: July 2026.
Dollar figures on this page apply to tax year 2026 (returns filed in 2027) and are adjusted for inflation each year.
UnrealFi is a mortgage broker, not a tax advisor. This article is general information, not tax advice. Talk to a qualified tax professional about your specific situation.
Homeowners hear a lot about the “mortgage interest deduction,” and most of what they hear is either outdated or oversimplified. The rules changed meaningfully in 2025 and again for 2026, and several things that were true a few years ago are no longer true.
Whether the deduction helps you depends on the type of property you own, how you file, and what your other deductions look like. Here is a practical overview.
Mortgage Interest on a Primary Residence or Second Home
Mortgage interest paid on a primary residence or a second home may be deductible as an itemized deduction on Schedule A.
Two conditions apply.
1. You have to itemize
Mortgage interest only produces a tax benefit if your total itemized deductions exceed the standard deduction. If you take the standard deduction, your mortgage interest does not reduce your taxable income at all.
Standard deduction, tax year 2026:
- Married Filing Jointly and surviving spouses: $32,200
- Single and Married Filing Separately: $16,100
- Head of Household: $24,150
Taxpayers who are 65 or older or legally blind get an additional amount on top: $2,050 for single filers, $1,650 per qualifying person for married filers.
These figures are indexed to inflation and change every year. The comparison that matters is your total itemized deductions (mortgage interest, state and local taxes, charitable giving, and the rest) against the standard deduction for your filing status.
2. Loan size limits apply
Interest is deductible only on acquisition debt up to:
- $750,000 for single filers, heads of household, and married couples filing jointly
- $375,000 for married filing separately
This applies to loans originated after December 15, 2017.
Loans taken out on or before December 15, 2017 are grandfathered at the older, higher limits: $1,000,000, or $500,000 for married filing separately.
Two points worth knowing:
The $750,000 limit is now permanent. Under prior law it was scheduled to expire after 2025 and revert to $1 million. The One Big Beautiful Bill Act, signed in July 2025, made the lower limit permanent. If you read somewhere that the cap was about to go back up, that information is out of date.
Married couples filing separately cannot double the limit. The cap applies across the household, not per return.
What counts as acquisition debt
The debt has to have been used to buy, build, or substantially improve the home that secures it. This matters most for home equity loans and HELOCs. Interest on a HELOC used to renovate the kitchen is generally deductible. Interest on the same HELOC used to pay off credit cards or buy a car is generally not, even though the loan is secured by your home.
Other Itemized Deductions Homeowners May Claim
Alongside mortgage interest, homeowners may be able to deduct:
- Mortgage insurance premiums, newly deductible again as of 2026
- Property taxes (subject to the SALT limit below)
- Mortgage points, with rules that depend on the transaction type
- Prepaid interest paid at closing
SALT Deduction Limits
The state and local tax (SALT) deduction covers property taxes, state income taxes, and local taxes. It is capped.
This is the area with the biggest recent change, and it is the reason itemizing is worth a second look for many homeowners who wrote it off a few years ago.
Where the cap has been:
- Through tax year 2024: $10,000 per household
- Tax year 2025: raised to $40,000
- Tax year 2026: $40,400
How the 2026 phase-out works:
- The cap begins to phase down once modified adjusted gross income exceeds $505,000
- Above that threshold, the cap is reduced by $0.30 for every $1 of income
- It never falls below a $10,000 floor, which is reached at roughly $608,000 of MAGI
- For married filing separately, the threshold is $252,500 and the floor is $5,000
Where it goes from here: the cap increases about 1% per year through 2029, then is scheduled to revert to $10,000 in 2030 unless Congress extends it.
One clarification that causes confusion: the SALT cap applies only to taxes. It does not limit your mortgage interest deduction.
Mortgage Insurance Premiums
This is new for 2026.
For premiums paid on or after January 1, 2026, mortgage insurance premiums are treated as qualified residence interest and may be deducted on Schedule A. This covers:
- Conventional private mortgage insurance (PMI)
- FHA mortgage insurance premiums
- VA funding fees
- USDA guarantee fees
The amount is reported in Box 5 of your Form 1098.
The income limits here are tight, and worth understanding before you get your hopes up. The deduction begins to phase out once adjusted gross income exceeds $100,000 ($50,000 for married filing separately). It reduces by 10% of the otherwise allowable deduction for each $1,000 of income above that threshold, and disappears entirely at $110,000.
That is a narrow window. A meaningful share of borrowers who pay mortgage insurance will earn too much to claim this. It is a real benefit for the households it reaches, but it is not the broad win it is sometimes presented as.
Mortgage Points
Points are prepaid interest, and their tax treatment depends on what kind of transaction they came from.
On a purchase: points paid on the purchase of a primary residence may be fully deductible in the year paid, provided a specific set of IRS conditions is met. Those conditions cover things like whether paying points is an established practice in your area, whether the amount charged is customary, and whether you paid the points with your own funds rather than borrowing them.
On a refinance: points generally must be amortized over the life of the loan rather than deducted all at once. On a 30-year refinance, that means deducting 1/30th of the points each year.
One thing people miss: if you refinance again and pay off the earlier loan, any points from that earlier refinance that you have not yet deducted can generally be deducted in full in the year the loan is paid off. If you have refinanced more than once, this is worth raising with your tax preparer.
A note specific to UnrealFi clients
Most of our loans are structured with no closing costs, which means you typically do not pay points. Box 2 of your Form 1098 will show zero, and that is correct, not an error.
If you read a general article about the points deduction and expected to see something there, this is why. You did not pay points, so there is nothing to deduct. Lender credits applied at closing cover your costs; they do not change the mortgage interest you pay or the amount reported on your 1098.
Investment Property Mortgage Interest
Mortgage interest on an investment property is treated completely differently, and most of this article does not apply to it.
Instead of an itemized deduction on Schedule A, it is an ordinary business expense reported on Schedule E against rental income. That means:
- There is no $750,000 cap. Interest is deducted as a normal operating expense.
- You do not need to itemize. Schedule E deductions are available whether or not you take the standard deduction on your personal return.
- A wide range of other expenses are deductible too: property taxes, insurance, repairs and maintenance, property management fees, and depreciation.
Passive activity loss rules can limit how much of a rental loss you can use in a given year, with disallowed amounts generally carried forward. If your rental operates at a loss, ask your tax preparer how those rules apply to you.
Form 1098
Most borrowers receive Form 1098 from their servicer each year. It reports the total mortgage interest paid.
- Servicers are required to furnish it to you by January 31
- A 1098 is issued when $600 or more in interest was paid
- The form is informational. It is not strictly required in order to claim the deduction, but it makes filing easier and provides documentation if you are ever audited
If your loan was transferred during the year, you should receive a 1098 from every servicer that held it. Loan transfers are routine and getting more than one form is normal. Filing with only one of them understates what you actually paid.
If you do not receive a 1098
You can still document mortgage interest with:
- Your Closing Disclosure
- Monthly mortgage statements
- Payment history from your servicer
- Loan servicing summaries
Timing: When Interest Is Deductible
Mortgage interest is deducted based on when it is paid, not when it accrues.
Because mortgage interest is paid in arrears, a payment made in January generally covers interest that accrued in December of the prior year. That interest is deducted in the year the payment was made, not the year it accrued.
Example: a January 2027 payment usually covers December 2026 interest, but is deducted on your 2027 return.
Prepaying interest does not get around this. With the narrow exception of points, interest has to relate to a period that has already occurred in order to be deductible.
Prepaid Interest at Closing
Interest paid at closing, sometimes called prepaid or per diem interest, covers the days between your closing date and the start of your first full payment period. It is deductible in the year it is paid.
It usually appears on your Form 1098. If it does not, your Closing Disclosure documents it.
The Honest Answer
Whether the mortgage interest deduction actually helps you comes down to one comparison: do your itemized deductions add up to more than your standard deduction?
From 2018 through 2024, with state and local taxes capped at $10,000, most homeowners could not clear that bar, and the honest advice was that the deduction was worth less than people assumed.
That has changed. With the SALT cap now at $40,400, property taxes and mortgage interest together push a lot more households over the line than they did two years ago. The effect is largest in higher-tax states and in the early years of a loan, when interest makes up most of every payment.
It is no longer safe to assume the deduction does nothing for you, and it is not safe to assume it does either. It is worth actually running the numbers. Your tax preparer can do it in a few minutes.
Questions
If you cannot find your closing documents or need a copy of your Closing Disclosure, contact your loan officer and we will resend them.
For anything about how these rules apply to your return, talk to your tax preparer. That is their job, not ours.
Disclaimer: UnrealFi does not provide tax advice. This article is general information about how mortgage interest deductions work and is not a recommendation or an opinion about your individual tax situation. Tax rules change, and the figures on this page apply to tax year 2026. Always consult a qualified tax professional regarding your specific circumstances.
