Is the Mortgage Interest Deduction a Big Deal?
One of the financial benefits of owning a home is that you may qualify to deduct the interest you pay on your mortgage loan each year on your federal income taxes, something that can reduce your tax bill.
Many homeowners can qualify to deduct the interest they pay each year on up to $750,000 in mortgage debt. This includes primary mortgage loans and home equity loans or lines of credit if you are using those equity loans to pay for home improvements or renovations that boost the value of your residence.
You can qualify to deduct the interest you pay on up to $1 million of mortgage debt if you took out your mortgage loan on or before Dec. 16, 2017.
You might hear the mortgage interest deduction touted as one of the main reasons to buy a home. The truth, though, is that most taxpayers don't claim this deduction.
The standard deduction is too valuable today
Why not? It's because of the size of the standard deduction. It tends to increase every year and is significantly higher today than it was just a few years ago. The Tax Cuts and Jobs Act passed in 2017 nearly doubled the standard deduction. And once that happened, the mortgage interest deduction became less valuable.
For example, in 2025, the standard deduction is $31,500 for married couples filing jointly and qualifying surviving spouses, $23,625 for heads of household, and $15,750 for single filers and married couples filing separately. (Standard deductions increase if you are over age 65 or blind.) If your mortgage interest paid is less than any of those amounts, it may not make sense for you to itemize than to take the standard deduction.
Homeowners can only claim the mortgage interest deduction if they itemize deductions on their taxes. And if they itemize individual deductions, they can't also claim the standard deduction.
Most homeowners, then, will save more in taxes by claiming the standard deduction and not itemizing their deductions. These owners, then, won't claim the mortgage interest deduction because it doesn't make financial sense for them.
Deductions, not tax credits
It's important to also remember that the standard deduction and mortgage interest deduction are deductions and not tax credits. Deductions don't reduce the taxes you pay on a one-to-one basis, while tax credits do. Tax credits, then, are more valuable to taxpayers than deductions. That is, the standard deduction reduces your adjusted gross income — the money you are taxed on.
The same holds true for the mortgage interest deduction. If you paid $5,000 of mortgage interest during the year, the mortgage interest deduction will reduce your adjusted gross income by $5,000. Claiming the mortgage interest deduction only makes financial sense if your total itemized deductions are higher than whatever standard deduction you can claim. And that's rare for most taxpayers today, even those who are homeowners.
So what should you do? Stop making assumptions! Work with tax professionals who will tell you what the best strategy is in your situation.
