How the Mortgage Interest Deduction Works for a Typical Homeowner

For many homeowners, one of the most valuable tax breaks available is the mortgage interest deduction. But how does it actually work, and who benefits from it?

What Is the Mortgage Interest Deduction?

The mortgage interest deduction allows homeowners to deduct the interest paid on a mortgage used to buy, build, or substantially improve their primary residence or a second home. This deduction can reduce your taxable income, potentially saving you thousands—if you qualify.

Key Requirements

• You must itemize deductions on your tax return.
• The mortgage must be secured by your home.
• The funds must have been used for acquisition, construction, or improvement of the home.

Deduction Limits

For mortgages taken out after December 15, 2017, interest is deductible on up to $750,000 of mortgage debt if filing jointly, or $375,000 if married filing separately. Mortgages from before that date may still qualify for the older $1 million limit.

What About the SALT Deduction?

In addition to mortgage interest, many homeowners benefit from the State and Local Tax (SALT) deduction. This allows you to deduct certain taxes paid, including:

• State income taxes or sales taxes (but not both),
• Local property taxes, and
• Certain other state and local taxes.

However, under the Tax Cuts and Jobs Act of 2017, the SALT deduction is capped at $10,000 per year (or $5,000 if married filing separately). This cap especially affects homeowners in high-tax states like New York, California, and Maryland.

Why It Matters

The SALT deduction is part of your itemized deductions. When combined with mortgage interest and other deductions (such as charitable donations), it can help push your total deductions above the standard deduction threshold—making itemizing worthwhile.

Example:

• Mortgage interest: $9,500
• SALT taxes: $10,000 (max allowed)
• Charitable contributions: $3,000

Total itemized deductions: $22,500. That’s below the 2024 standard deduction of $29,200 for married couples filing jointly but may make sense for single filers or in earlier mortgage years when interest is higher.

Standard Deduction vs. Itemizing

Here’s a reminder of the 2024 standard deduction amounts:

• $14,600 for single filers
• $29,200 for married couples filing jointly

If your total itemized deductions fall below these amounts, you’re generally better off taking the standard deduction—and you won’t benefit from the mortgage or SALT deductions that year.

Is It Still Worth It?

The mortgage interest deduction can still provide meaningful savings, especially for:

• Homeowners with large or recent mortgages
• Those living in high-tax states
• People with significant charitable giving

But unlike years past, it’s no longer a guarantee. Many homeowners now find that the standard deduction gives them the greater tax break. It’s important to evaluate this annually based on your actual expenses.

Disclaimer

This article is for informational purposes only and does not constitute legal or tax advice. Tax laws change frequently and can be complex. Always consult a qualified tax professional or CPA to understand how current tax rules apply to your specific financial situation.