IRS Publication 936 – The home mortgage interest deduction is one of the most valuable tax breaks for homeowners, allowing you to reduce your taxable income by deducting interest paid on your home loan. IRS Publication 936, titled “Home Mortgage Interest Deduction,” serves as the definitive guide to understanding this deduction. Updated for the 2025 tax year, this publication outlines eligibility, limits, calculation methods, and special rules to help you maximize your savings while staying compliant with IRS regulations. Whether you’re a first-time homebuyer or refinancing an existing mortgage, this SEO-optimized article breaks down everything you need to know about deducting mortgage interest on your taxes.
What Is the Home Mortgage Interest Deduction?
The home mortgage interest deduction lets qualifying taxpayers deduct the interest paid on loans secured by their home from their taxable income. This can significantly lower your tax bill, especially in the early years of a mortgage when interest payments are highest. According to IRS Publication 936, fully deductible interest applies to mortgages that meet specific criteria, such as being secured by a qualified home.
Key definitions from the publication include:
- Secured Debt: A loan where your home acts as collateral, backed by a recorded mortgage, deed of trust, or land contract.
- Qualified Home: Your main residence (where you live most of the time) or a second home, including houses, condos, mobile homes, boats, or similar properties with sleeping, cooking, and toilet facilities.
- Grandfathered Debt: Mortgages originated on or before October 13, 1987, with no deduction limits.
- Home Acquisition Debt: Loans taken after October 13, 1987, used to buy, build, or improve your home.
This deduction is only available if you itemize on Schedule A of Form 1040 or 1040-SR, rather than taking the standard deduction. For many homeowners, especially those with high-interest loans, this can lead to substantial tax savings.
Eligibility Requirements for the Mortgage Interest Deduction
Not all home loans qualify for the deduction. To be eligible under IRS Publication 936:
- You must be legally obligated to pay the debt, and both you and the lender must intend for repayment.
- The mortgage must be secured by a qualified home in which you have an ownership interest.
- For home equity loans or lines of credit, the proceeds must be used to buy, build, or substantially improve the home securing the loan—general debt consolidation or other uses no longer qualify for deduction.
Additionally, if you’re married filing separately, limits are halved. Special rules apply for cooperative housing, where interest is allocated based on your stock share in the corporation.
If your mortgage doesn’t meet these standards, such as a wraparound mortgage not properly recorded, the interest may not be deductible. Always review Figure A in Publication 936—a flowchart that helps determine if your interest is fully deductible.
Types of Qualifying Mortgages
IRS Publication 936 categorizes qualifying loans into several types, each with its own rules:
- Grandfathered Debt: Unlimited deduction for loans from before October 13, 1987, as long as they’ve remained secured by the home.
- Home Acquisition Debt: Loans after October 13, 1987, for purchasing, building, or improving your home. This includes refinanced debt, treated as acquisition debt up to the original loan balance.
- Home Equity Debt: Only deductible if funds are used for home improvements; no longer allowable for other purposes post-2017 tax reforms.
- Mixed-Use Mortgages: Loans that span categories require allocation of balances and interest.
For refinanced loans, the deduction applies only to the portion used for improvements if it’s beyond the original debt. Cooperative loans and time-share properties can also qualify if they meet home usage criteria.
Mortgage Interest Deduction Limits in 2025
Deduction limits depend on when the debt was incurred:
- For debt before December 16, 2017: Up to $1 million ($500,000 if married filing separately) for combined grandfathered and home acquisition debt.
- For debt after December 15, 2017: Reduced to $750,000 ($375,000 if married filing separately).
- A binding contract exception applies for pre-December 16, 2017, contracts closing before April 1, 2018, allowing the $1 million limit.
Grandfathered debt reduces these limits. If your total debt exceeds the caps, you’ll need to prorate the deductible interest using Table 1 in Publication 936. There’s no limit if all your mortgages fall under grandfathered debt or stay within acquisition thresholds.
| Debt Type | Limit (Single/Joint) | Limit (Married Filing Separately) |
|---|---|---|
| Pre-2017 Acquisition Debt | $1,000,000 | $500,000 |
| Post-2017 Acquisition Debt | $750,000 | $375,000 |
| Grandfathered Debt | No Limit | No Limit |
These limits ensure the deduction benefits homeowners without allowing unlimited tax shelters.
How to Calculate Your Home Mortgage Interest Deduction?
Figuring your deduction involves determining average loan balances and applying limits. IRS Publication 936 provides Table 1, a worksheet with two parts:
- Part I: Qualified Loan Limit: Calculate average balances for grandfathered, pre-2017, and post-2017 debt. Apply limits and subtract grandfathered amounts.
- Part II: Deductible Interest: Total your average balances and interest paid. If balances exceed limits, multiply interest by the proration ratio (limit divided by total balance).
Methods for average balance:
- Simplified: Average of first and last balance if payments are level.
- Interest/Rate: Divide total interest by the interest rate if secured all year.
For mixed-use loans, allocate payments monthly by category. Examples in the publication illustrate scenarios, like prorating when debt exceeds limits or handling refinances.
Points and Mortgage Insurance Premiums: What You Need to Know
Points, or prepaid interest, are often deductible:
- Deduct in the year paid if they’re for your main home, customary in your area, and meet other tests (see Figure B flowchart).
- Otherwise, deduct ratably over the loan term (e.g., $4,800 points on a 20-year loan: $20 per month).
- Seller-paid points reduce your home’s basis but can be deductible if you meet criteria.
Mortgage insurance premiums (MIP) deduction has expired and is no longer claimable for 2025. Late payment charges and prepayment penalties are deductible if not for specific services.
Special Situations and Rules
Publication 936 covers unique cases:
- Sale of Home: Deduct interest up to the sale date.
- Divorced or Separated: Interest on a former spouse’s home may count as alimony.
- Reverse Mortgages: Interest not deductible as it’s added to the loan balance.
- Home Under Construction: Treated as qualified for up to 24 months.
- Home Office or Rental Use: Allocate deduction based on personal vs. business use (see Pub. 587).
- Refunds of Interest: Must be reported as income if previously deducted.
Ministers and military personnel can deduct despite nontaxable housing allowances. For destroyed homes, continue the deduction if rebuilding or selling the land.
How to Claim the Deduction on Your Tax Return?
Report on Schedule A (Form 1040):
- Line 8a: Interest and points from Form 1098.
- Line 8b: Other interest not on Form 1098.
- Line 8c: Points not reported on Form 1098.
If you receive a mortgage interest credit (Form 8396), reduce your deduction accordingly. Keep records like settlement statements and loan documents.
Frequently Asked Questions About IRS Publication 936
- What if my home equity loan was for non-home purposes? Interest isn’t deductible post-2017.
- Can I deduct interest on a second home? Yes, if it’s not rented out more than allowed (14 days or 10% of rental days).
- How do I handle refinanced points? Deduct the improvement portion in the year paid; the rest ratably.
- Is there a deduction for mortgage insurance in 2025? No, it has expired.
- What if my debt exceeds limits? Use Table 1 to prorate.
For more details, consult IRS.gov/Pub936 for updates.
Conclusion: Maximize Your Tax Savings with the Home Mortgage Interest Deduction
Understanding IRS Publication 936 can help you navigate the complexities of the home mortgage interest deduction, potentially saving thousands on your 2025 taxes. Always consult a tax professional for personalized advice, especially with special situations or recent legislative changes like the One Big Beautiful Bill Act. By itemizing correctly and staying within limits, you can make the most of this homeowner benefit. For the full publication, visit the IRS website or download the PDF at https://www.irs.gov/pub/irs-pdf/p936.pdf.