Updated: Mar 18, 2024

How Do Changes to the Mortgage Interest Deduction Affect Homeowners?

Learn about the 2018 changes to the tax law that affect mortgage interest deductions for homeowners. Find out what they mean for homeowners and homebuyers today.
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The bigger your mortgage, the more interest you’re probably paying on your debt. At least that interest is tax-deductible, right?

Many homeowners are aware of the mortgage interest tax deduction.

They might not know how recent tax law changes will affect them.

Will taxable income go up? Will deductions go down? Is it smarter to itemize your tax deductions, or claim the standard deduction?

Let’s take a look at the mortgage interest deduction and the recent changes to the tax law. Find out how will these changes affect both current and future homeowners.

What is the Mortgage Interest Deduction?

The mortgage interest deduction allows you to deduct the interest you paid on your mortgage from your taxable income.

Let's say you have $50,000 in taxable income and paid $5,000 in mortgage interest.

The mortgage interest deduction would bring your taxable income down to $45,000.

You can only deduct the mortgage interest you paid in the current tax year. You might not be able to deduct the entire amount.

Tax law limits the amount of mortgage debt eligible for the deduction. That’s the big change in the tax law this year, and we’ll examine it more closely later in the post.

The mortgage interest tax deduction is only available to taxpayers who itemize their deductions. If you take the standard deduction, you won’t be able to deduct your mortgage interest as well.

Remember: a deduction on your taxable income is not the same thing as a tax credit.

You can’t deduct your mortgage interest payments from the amount you owe in taxes.

You can only use your mortgage interest payments to reduce the amount of income that goes into determining how much tax you owe.

Who Is Eligible for the Deduction?

You are eligible for the mortgage interest deduction if you have a mortgage on a home or a second home.

Mortgages on houses, co-ops, condos, recreational vehicles, mobile homes, and boats all count, as long as you use the structure as a home.

If you are taking a mortgage interest deduction on a second home, you must use that home as a secondary residence. If you rent out your second home, you need to live in the home for a percentage of the year to be eligible for the deduction.

You cannot take a mortgage interest deduction on a third or fourth home.

Your mortgage must be secured by your home for it to be eligible. Your name must also be on the loan as the primary borrower.

For example, you are helping somebody else pay their mortgage (such as a spouse or child) but your name is not on the loan.

In that case, you cannot claim the mortgage interest deduction.

How Has the Mortgage Interest Deduction Changed?

If you purchased your home before December 15, 2017, you can deduct mortgage interest payments on mortgage debt of up to one million dollars (or $500,000 if you are married filing separately).

If you purchased your home after December 15, 2017, the maximum allowable mortgage debt drops down to $750,000 (or $350,000 if you are married filing separately).

If you took out a million-dollar mortgage after December 15, 2017, this doesn’t mean that you will no longer be eligible for the mortgage interest deduction.

Instead, it means that you’ll only be able to deduct the interest paid on $750,000 of your total debt.

Another change

There’s one more change you should be aware of.

Before 2018, homeowners could deduct interest payments on up to $100,000 of home equity debt. They got that deduction whether they used the money to improve their home or pay for personal expenses.

For mortgages taken out in 2018 or after, you can deduct the interest on the first $750,000. The home equity debt limit is still $100,000.

What Does This Mean for Homeowners?

If you purchased your home before December 15, 2017, the mortgage interest deduction change won’t affect you. You can continue to deduct interest payments on up to $1 million dollars of mortgage debt from your taxes.

If your mortgage debt is less than $750,000, the mortgage interest deduction change won’t affect you. You can continue to deduct your full mortgage interest payments from your taxes.

Do you plan to take the standard deduction instead of itemizing? If so, the mortgage interest deduction change won’t affect you. You won’t be deducting your mortgage interest, after all!

Which homeowners will be affected by the mortgage interest deduction change? Homeowners whose mortgage debt is higher than $750,000 and who itemize their deductions on their taxes. These homeowners may end up paying more in taxes in 2018.

Should Homeowners Itemize Their Deductions or Take the Standard Deduction?

The mortgage interest deduction decreased in 2018, but the standard deduction nearly doubled.

Currently, married couples filing jointly can claim a $25,900 standard deduction.

Single people/married filing separately can claim $12,950. (In 2017, married couples filing jointly could only claim $12,700. Single people/married filing separately could only claim $6,350.)

How to choose your deductions

Want to know whether you should itemize your deductions or take the standard deduction?

Calculate how many deductions you’ll be eligible for if you itemize.

Have you made a lot of charitable donations in the past year? Do you have any deductible medical expenses? You might want to meet with a CPA to discuss which deductions apply to your situation.

Make a list of all the deductions you're eligible for. Add up the deductible amounts and compare them to the standard deduction.

Let's say that you're a married couple filing jointly.

Are your total deductible amounts higher than the $25,900 standard deduction?

If so, you’ll want to itemize. If your potential deductions are lower than $25,900, take the standard deduction.

Some people count up every receipt before deciding whether to itemize or take the standard deduction. Other people estimate or do back-of-the-envelope calculations.

How the Changes Affect Prospective Homebuyers

Are you planning to buy a home? Don’t let the mortgage interest tax deduction tempt you into buying more home than you can afford.

You also don’t want to accept a higher interest rate just because that interest will be tax deductible.

Yes, the interest you pay on your mortgage may help reduce your taxable income.

You still need to be able to afford your monthly mortgage payments without stressing the rest of your budget. If your mortgage payments are too high and you can’t keep up, you run the risk of foreclosure.

Not an excuse to hold on to mortgage

Some homeowners think that the mortgage interest deduction means it’s okay to take their time paying off a mortgage.

The longer it takes to pay your mortgage down, the more tax-deductible interest you end up paying, right?

Yes, but it’s still a smarter financial move to pay off your mortgage as quickly as possible. The amount you save in taxes won’t compare to the amount you pay in extra interest.

Tax law changes in the future

You should also be aware that the mortgage interest deduction may change again in 2026.

Current tax legislation states that in 2026, homeowners will be able to deduct mortgage interest payments on up to $1 million of mortgage debt.

Homeowners will also be able to deduct interest on up to $100,000 of home equity debt.

But new legislation might prevent these changes from taking place. Don’t buy an expensive home under the assumption that you’ll be able to deduct more of your interest payments in eight years!


The mortgage interest deduction is a nice perk, but don’t let it be the defining factor in your decision to buy a home.

Make sure the home you plan to buy is affordable whether or not you deduct your mortgage interest payments.

Talk with a CPA if you have any questions about how these recent tax law changes will affect you.