Mortgage Tax Deductions 2026: Interest, Points & Property Tax

Here's a statistic that should give every homeowner pause: according to IRS data, 17.8 million tax returns claimed the mortgage interest deduction with a combined $52.6 billion in tax expenditure in the most recent filing year. That's real money — but it's far fewer homeowners than you might expect given that roughly 85 million Americans have mortgages.

The gap exists because most homeowners don't actually benefit from itemizing their deductions. The 2017 Tax Cuts and Jobs Act dramatically increased the standard deduction, and many mortgage holders find the standard deduction outperforms their itemized total.

But for homeowners with large mortgages, high property taxes, or significant points paid at closing, itemizing is still worth thousands. And 2026 brings specific changes you need to know about before you file.

> Key Takeaways > - You can deduct mortgage interest on up to $750,000 of qualifying debt for loans taken after December 15, 2017 (up to $1 million for older loans). > - PMI (private mortgage insurance) premiums are deductible as mortgage interest starting in 2026, per the One Big Beautiful Bill Act. > - The SALT cap increases from $10,000 to $40,000 for 2026–2029 — a major win for high property-tax states like New York, New Jersey, and California. > - Mortgage points paid at closing are deductible, but the rules differ depending on whether they're paid on a purchase or refinance. > - You must itemize on Schedule A to claim any of these deductions — and it only benefits you if your total itemized deductions exceed your standard deduction.

The Core Deduction: Mortgage Interest

Let's start with the biggest one and work through the details that matter.

What Qualifies as Deductible Mortgage Interest

The IRS defines "qualified mortgage interest" as interest paid on "qualified home debt" — loans secured by your main or second home used to buy, build, or substantially improve the home. Per IRS Publication 936, this covers:

• Interest on your first mortgage
• Interest on a second mortgage (including HELOCs and home equity loans when proceeds are used for home improvements)
• Interest on refinanced loans (up to the original loan balance in most cases)

What does not qualify: - Interest on unsecured home improvement loans - Interest on HELOC balances used for non-home purposes (paying off credit cards, college tuition, etc.) - Interest on loans above the applicable debt limit

The Debt Limit Rules (and Why They Matter More Than You Think)

For mortgages originated after December 15, 2017: you can deduct interest on the first $750,000 of combined qualifying mortgage debt ($375,000 if married filing separately).

For mortgages originated on or before December 15, 2017: the limit is $1,000,000 ($500,000 MFS).

These limits apply to combined balances — meaning if you have a $600,000 first mortgage and a $200,000 home equity loan, you've reached $800,000 and the last $50,000 of interest isn't deductible (under the post-2017 rules).

| Loan Origination | Married Filing Jointly Limit | Married Filing Separately | |---|---|---| | After Dec 15, 2017 | $750,000 | $375,000 | | On/Before Dec 15, 2017 | $1,000,000 | $500,000 | | Refinanced 2017 or earlier debt | Grandfathered at $1,000,000 | $500,000 |

The refinancing wrinkle: If you refinance a grandfathered ($1M limit) loan, you retain the $1M cap — but only up to the principal balance at the time of the refinance. If you cash out and increase the balance, the cash-out portion is subject to the $750,000 cap. This is an area where many homeowners inadvertently lose deductibility.

A Real Dollar Example: What the Deduction Is Worth

Let's make this concrete. Say you have a $500,000 mortgage at 6.8% taken out in 2024.

In year one, you'll pay approximately $33,700 in mortgage interest (the exact figure from an amortization schedule — use the mortgage calculator to compute yours precisely).

If you're in the 24% federal tax bracket, the deduction saves you: $33,700 × 24% = $8,088 in federal taxes saved

If you're in the 32% bracket: $33,700 × 32% = $10,784 in federal taxes saved

But — and this is critical — you only capture this benefit if your total itemized deductions exceed the standard deduction. For 2026, the standard deduction is approximately $15,000 for single filers and $30,000 for married filing jointly (these amounts are adjusted annually for inflation; verify the exact figure with the IRS before filing).

If your mortgage interest is $33,700 but your total itemized deductions (including property taxes, state income taxes, charitable contributions) only add up to $28,000, the standard deduction wins by $2,000. You'd be leaving money on the table by itemizing.

The threshold analysis: Add up your mortgage interest + property taxes (now up to $40,000 per the SALT cap change discussed below) + state income taxes + charitable contributions. If that total clears your standard deduction, itemize. If not, take the standard deduction.

PMI Deductibility: A 2026 Change Worth Noting

If you put down less than 20% and pay private mortgage insurance (PMI), take note: PMI premiums are now deductible as mortgage interest starting in 2026, per the One Big Beautiful Bill Act (OBBBA).

This is a reversal of the previous situation, where PMI deductibility had expired and was left in legislative limbo. The change is permanent under the OBBBA.

Who this affects: Homeowners who financed with less than 20% down — a group that includes a large share of FHA borrowers, first-time buyers using 3–5% down conventional loans, and anyone who bought at today's prices without a substantial down payment.

Average PMI rates range from 0.5% to 1.5% of the loan amount annually. On a $400,000 loan at 0.8% PMI: - Annual PMI: $3,200 - In the 22% bracket: $704 additional tax savings

This won't change anyone's financial life, but it's real money — and combined with mortgage interest and the expanded SALT cap, it may tip the scale toward itemizing for some borrowers who previously couldn't justify it.

Mortgage Points: The Rules Are Surprisingly Strict

Points (also called loan origination fees, discount points, or mortgage origination points) represent prepaid interest. One point = 1% of the loan amount. They're paid at closing to reduce your interest rate.

The deductibility of points depends critically on whether they're paid on a purchase or a refinance.

Points on a Home Purchase: Deductible Immediately

If you paid points when purchasing your primary home, the full amount is deductible in the year paid — provided you meet these requirements (per IRS Publication 936):

• The loan is secured by your main home
• Points are a normal business practice in your area
• Points weren't paid in place of other closing costs
• You didn't borrow the money to pay the points (they must come from your own funds, including the earnest money and down payment you brought to closing)
• The amount paid appears on the HUD-1/Closing Disclosure

Example: You bought a $500,000 home and paid 2 points ($10,000) at closing. That $10,000 is deductible in full in the year of purchase, reducing your taxable income by $10,000 and saving you $2,400 in federal taxes if you're in the 24% bracket.

Points on a Refinance: Amortized Over the Loan Life

Refinance points can't be deducted in the year paid. Instead, they must be amortized — deducted in equal installments over the life of the loan.

Example: You refinanced a 30-year mortgage and paid 1 point on a $400,000 loan ($4,000 in points). You deduct $4,000 ÷ 360 months = $133 per year over 30 years.

The exception: If you sell or refinance again before the loan term ends, you can deduct any remaining unamortized points in the year the loan terminates. This is a commonly missed deduction when people refinance multiple times.

The SALT Deduction: A Major 2026 Change

SALT stands for State and Local Taxes — it covers state income taxes (or state sales taxes if you opt for that election) plus property taxes.

Under the 2017 Tax Cuts and Jobs Act, SALT deductions were capped at $10,000. This cap hit high-tax states hardest — homeowners in New York, New Jersey, California, Connecticut, and Illinois often paid $20,000–$50,000+ in combined state income and property taxes, but could only deduct $10,000.

The 2026 change: The One Big Beautiful Bill Act increases the SALT cap from $10,000 to $40,000 for 2026 through 2029. This is the most significant homeowner tax change of this filing cycle.

| Scenario | State Income Tax | Property Tax | Previous Deduction (SALT cap) | New Deduction (2026) | |---|---|---|---|---| | NJ homeowner | $18,000 | $14,000 | $10,000 | $32,000 | | CA homeowner | $22,000 | $9,500 | $10,000 | $31,500 | | TX homeowner | $0 | $8,500 | $8,500 | $8,500 | | NY homeowner | $25,000 | $20,000 | $10,000 | $40,000 (capped) |

Source: One Big Beautiful Bill Act (OBBBA), 2026; illustrative state tax estimates.

For a New Jersey homeowner in the 32% federal bracket who previously could only deduct $10,000 SALT but can now deduct $32,000: that's $22,000 in additional deductible SALT, worth $7,040 in additional federal tax savings. Combined with mortgage interest, this makes itemizing significantly more attractive for high-tax-state homeowners.

Important note: The increased SALT cap begins to phase out for very high earners. If your income significantly exceeds $500,000, consult a CPA for the exact treatment.

Home Equity Loan and HELOC Interest

This is an area where the rules are frequently misunderstood — and where the IRS has been explicit.

Per IRS Publication 936 and the 2018 guidance issued after the Tax Cuts and Jobs Act:

Interest IS deductible on a HELOC or home equity loan if the proceeds are used to buy, build, or substantially improve the home securing the loan.

Interest is NOT deductible if the HELOC proceeds are used for any other purpose — paying off credit cards, buying a car, funding college tuition, taking a vacation.

The use of funds, not the label of the loan, determines deductibility.

Example: You took out a $60,000 HELOC on your primary residence. You used $40,000 to renovate your kitchen and $20,000 to pay off credit card debt. You can deduct interest on the $40,000 portion. You cannot deduct interest on the $20,000 portion.

Tracking is your responsibility. If you blend HELOC funds across multiple uses, keep meticulous records of how each dollar was spent. This documentation will be necessary if you're ever audited.

The combined limit still applies: the HELOC balance plus your first mortgage balance must stay below $750,000 (post-2017 loans) for the full interest to be deductible.

Figuring Out Whether to Itemize

Let's make the decision clear with a worked example.

| Deduction | Amount | |---|---| | Mortgage interest (6.8% on $550,000, year 1) | $37,100 | | Property taxes (Texas average) | $8,500 | | PMI ($550,000 × 0.7% annual rate) | $3,850 | | Charitable contributions | $2,500 | | Total itemized deductions | $51,950 | | Standard deduction (MFJ, 2026) | ~$30,000 | | Itemizing advantage | +$21,950 |

In the 22% bracket, this couple saves approximately $4,829 by itemizing vs. taking the standard deduction. In the 24% bracket, that's $5,268.

| Deduction | Amount | |---|---| | Mortgage interest (6.8% on $280,000, year 1) | $18,900 | | Property taxes | $4,200 | | State income taxes | $3,800 | | Total itemized deductions | $26,900 | | Standard deduction (single, 2026) | ~$15,000 | | Itemizing advantage | +$11,900 |

This single buyer also benefits from itemizing. The $11,900 advantage in the 22% bracket is worth $2,618 in tax savings.

The calculation changes year over year as your mortgage interest declines. By year 15–20 of a 30-year mortgage, principal portion of your payment has grown substantially and your annual interest paid has dropped — at some point, the standard deduction may win. Run the calculation annually, not just in year one.

What You Cannot Deduct

Equally important: the things many homeowners assume are deductible but aren't.

• **Homeowners insurance premiums** — not deductible for a primary residence
• **HOA dues** — not deductible for primary residences (may be deductible for rental properties)
• **Home improvements (principal payments)** — paying down your mortgage faster saves interest but isn't a current deduction; it affects your basis when you sell
• **Closing costs** (other than points) — title insurance, appraisal fees, inspection fees, legal fees are not deductible
• **Utilities** — not deductible unless you have a qualifying home office
• **PMI on investment properties** — PMI deductibility per the OBBBA applies to your main or second home; investment property rules are separate

Record-Keeping: What to Save

If you claim mortgage interest and related deductions, maintain these records:

1. Form 1098 — Your lender sends this annually by January 31; it reports interest paid, points paid at origination, and for 2026+, separately noted mortgage insurance premiums 2. Closing Disclosure — Essential for proving points paid and their purpose at origination 3. Property tax statements — From your county assessor or via your escrow account summary 4. HELOC or home equity loan records — Receipts and contractor invoices documenting how funds were used, especially if split across qualifying and non-qualifying purposes

The IRS has three years from filing to audit a standard return and six years if it suspects significant underreporting. Keep these records for at least four years post-filing.

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Frequently Asked Questions

Can I deduct mortgage interest if I take the standard deduction?

No. The mortgage interest deduction is an itemized deduction claimed on Schedule A. If you take the standard deduction, you don't get to deduct mortgage interest separately. The decision to itemize or take the standard deduction is all-or-nothing — you choose whichever is larger.

Is mortgage interest deductible on a second home?

Yes — mortgage interest on a second home (vacation home, beach house) is deductible under the same rules as your primary residence. However, if you rent the property out for more than 14 days per year, IRS rules on mixed-use property apply and the calculation becomes more complex. Consult IRS Publication 527 or a tax professional for rental/personal use splits.

What is Form 1098 and do I need it to claim the deduction?

Form 1098 (Mortgage Interest Statement) is sent by your lender by January 31 of each year. It reports the total mortgage interest you paid during the prior year, any points paid at origination, and beginning in 2026, mortgage insurance premiums. You'll need this form to accurately claim the deduction. If you didn't receive it, contact your loan servicer.

Can I deduct property taxes if I escrow them through my mortgage?

Yes — the deductibility is based on when the taxes are actually paid to the taxing authority, not when you make escrow deposits. Your lender's Form 1098 or year-end escrow analysis will show the amounts disbursed. Keep in mind the new $40,000 SALT cap for 2026 covers combined state/local income taxes plus property taxes.

Are home equity loan interest payments deductible in 2026?

Only if the loan proceeds were used to buy, build, or substantially improve the home securing the loan. Using a HELOC for home improvements: deductible (subject to the combined $750K debt limit). Using a HELOC for debt consolidation or other non-home purposes: not deductible. The IRS requires you to track use of funds — mixing purposes requires allocating interest between deductible and non-deductible portions.

How do I deduct mortgage points paid when I refinanced?

Refinance points must be amortized (deducted ratably) over the life of the loan — typically 30 years. On a 30-year refinance with $4,000 in points, you deduct approximately $133/year. If you pay off the loan early (by selling or refinancing again), deduct all remaining unamortized points in the year the loan terminates. This is a commonly overlooked deduction.

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Figuring out whether itemizing makes financial sense in your situation starts with knowing your exact mortgage interest. Use the mortgage calculator to pull your full amortization schedule and see precisely how much interest you'll pay in each calendar year — that's your baseline number before adding property taxes, PMI, and SALT.