What Is Qualified Mortgage Interest?

Definition

Qualified mortgage interest includes interest you pay on your mortgage as well as any points toward your loan and qualified mortgage insurance.

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Definition and Example of Qualified Mortgage Interest

Qualified mortgage interest allows you to deduct some of the costs of homeownership from your income. That includes mortgage interest paid on your main residence up to a certain amount, as well as the interest on a second home as long as it’s not considered a rental property. Points you pay for a home loan may also qualify, along with any mortgage insurance paid on your home loan. This includes mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, the Rural Housing Service, and private mortgage insurance (PMI).

Let’s say you purchased your first home in October 2021. You and your partner put down 20% on a $700,000 house, and now the two of you are preparing to file your taxes. This is the first time you’ll be looking to file an itemized return rather than taking the standard deduction.

You heard that by filing an itemized deduction, you’ll be able to deduct the amount of interest you paid on your mortgage. The two of you also opted to purchase four points on your home loan to make your interest rate as low as possible.

You’re married and filing jointly, so you can deduct the total amount of mortgage interest you’ve paid. Since you bought the house in October, you have just three months worth of interest to deduct, but the points you paid are also deductible.

When tax season rolls around next year, you’ll have the entire year’s worth of interest to deduct, but since you deducted your points the previous year, you won’t be able to do so again.

Note

You will see your qualified mortgage interest and points on a Form 1098, Mortgage Interest Statement sent to you by the mortgage holder to which you made the payments.

How Qualified Mortgage Interest Works


While you may deduct the mortgage interest you pay on your main residence, it isn’t an unlimited amount. Since 2017, qualified mortgage interest extends only to the first $750,000 of indebtedness. This figure decreases to $375,000 if you are married filing separately.

However, if you acquired your mortgage loan before December 6, 2017, the cap is higher. You can deduct the mortgage interest from the first $1 million of indebtedness ($500,000 if married filing separately).

Note

Your main residence is where you call home most of the time, and can include a traditional house, cooperative apartment, condo, mobile home, house trailer, or even a houseboat. According to IRS requirements, it must have sleeping, cooking, and toilet facilities.

A home loan to build or improve your home may also qualify for a mortgage interest tax deduction. These could include a home equity loan, line of credit, second mortgage, or a loan refinance.

Not all properties or expenses qualify for a mortgage interest deduction, especially if you own multiple properties. For instance, if you rent out your second home during the year, you must have stayed there at least 14 days or more than 10% of the time the property is rented in order to qualify.

In addition, there are income phaseouts associated with this deduction. If you make more than the threshold limit—an adjusted gross income (AGI) of more than $109,000 or $54,500 if your filing status is married filing separately—you won’t be able to deduct your mortgage insurance as qualified mortgage interest. The amount of your mortgage insurance premiums that is otherwise deductible is reduced and may be eliminated if your AGI exceeds $100,000, or $50,000 if your filing status is married filing separately.

Note

Although private mortgage insurance (PMI) was extended as a qualified mortgage interest through the 2021 tax year, it has not yet been guaranteed for 2022.

When filing your taxes, the information related to qualified mortgage interest will go on Schedule A (Form 1040), where you list all your itemized deductions.

What Qualified Mortgage Interest Means for You

As a homeowner, learning how to itemize your deductions come tax season can save you a sizable amount of money. Depending on your mortgage interest rate, you can lower your tax burden by thousands of dollars each year by taking advantage of this deduction.

Key Takeaways

  • Qualified mortgage interest can be used to deduct your taxable income for the year.
  • Qualified mortgage interest includes payments made toward mortgage insurance, points paid on your loan, interest paid on the loan of your primary home, and interest paid toward your second home’s mortgage—if it qualifies.
  • Qualified mortgage interest will be deducted on Schedule A (Form 1040).

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. ”Publication 936 (2021), Home Mortgage Interest Deduction.”

  2. IRS. “Topic No. 505 Interest Expense.”

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