The mortgage interest deduction allows homeowners to deduct interest paid on up to $750,000 of mortgage debt ($375,000 if married filing separately). For mortgages taken out before December 15, 2017, the limit is $1,000,000.
However, you can only claim this deduction if you itemize deductions on Schedule A, and many homeowners find that the standard deduction ($15,000 single, $30,000 married) exceeds their total itemized deductions.
Here is when the mortgage interest deduction actually helps. If you are a single filer with $12,000 in mortgage interest, $8,000 in SALT (state and local taxes), and $2,000 in charitable donations, your itemized deductions total $22,000 — exceeding the $15,000 standard deduction by $7,000. Your tax savings from itemizing is $7,000 multiplied by your marginal rate.
But if your mortgage interest is only $6,000 and your total itemized deductions come to $14,000, you are better off taking the standard deduction of $15,000.
As a general rule, the mortgage interest deduction primarily benefits homeowners in high-cost areas with large mortgages and those in high-tax states where SALT deductions are significant.
On a $400,000 mortgage at 6.5%, your annual interest in the first year is approximately $25,870. Combined with SALT, this would easily exceed the standard deduction for most filers.
Points paid at closing to reduce your interest rate are also deductible in the year you pay them (for purchase mortgages) or amortized over the loan term (for refinances).
Use our US mortgage calculator to see your monthly payment and total interest over the life of the loan.