The mortgage interest deduction and the itemize or standard question

How it works

Interest on home acquisition debt, meaning a loan used to buy, build, or substantially improve the home, is deductible on up to this year's official mortgage interest debt cap (not yet verified here; see the official source below) of loan principal for loans taken out after a date set in law, with a higher cap for older loans. Interest on a home equity loan counts only when the money improved the home. The lender reports the interest on a form each January. The deduction goes on the itemized schedule along with state and local taxes up to the cap, charitable gifts, and medical costs above the floor. The total is compared with the standard deduction, this year's official standard deduction single (not yet verified here; see the official source below) for a single filer or this year's official standard deduction married (not yet verified here; see the official source below) for a joint return, and only the larger of the two reduces income. For many homeowners after the standard deduction rose, the itemized total falls short, and the mortgage interest changes nothing.

What it gives

In the early years of a large mortgage, interest is most of the payment, so the deduction is largest when it matters most.

Points paid to get the loan are deductible under conditions the IRS lists.

A second home's mortgage interest counts under the same cap.

What it costs, or where the catch is

It only helps when itemized deductions beat the standard deduction, which most households no longer reach.

The tax saved is the interest times the marginal rate, never the whole interest.

A loan above the principal cap has part of its interest excluded.

A worked example

Beatriz and Cyrus pay $14,000 of mortgage interest and $9,000 of state and property taxes, capped at a lower figure, plus $2,000 to charity. Suppose their itemized total comes to $23,000 and the married standard deduction is $29,000. They take the standard deduction, and the mortgage interest changes nothing. Their neighbor Delia, single with the same $14,000 of interest, has a standard deduction of $14,500, so her itemized total of $20,000 beats it by $5,500 and at 22 percent saves her $1,210.

Where it goes wrong

The common miss is assuming the mortgage interest cuts the tax bill without checking whether the itemized total ever passes the standard deduction.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS Publication 936, Home Mortgage Interest Deduction. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.