When Mortgage Interest Is Tax-Deductible

Many homeowners assume that mortgage interest is always tax-deductible—but that’s not entirely true. The rules vary depending on your tax filing status, loan type, and when you secured your mortgage. Missing the nuances can lead to costly mistakes or lost tax savings.

At Martini Mortgage Group, we believe informed homeowners make the best financial decisions. This guide will clarify when mortgage interest is deductible, ensuring you maximize your potential tax benefits.

Do You Itemize Deductions?

Before considering whether you can deduct mortgage interest, ask yourself: Do you itemize your tax deductions? If you opt for the standard deduction, mortgage interest isn’t deductible—period.

For 2025, the standard deduction amounts are:

• $15,000 for single taxpayers
• $22,500 for heads of household
• $30,000 for married couples filing jointly

If your total deductions, including mortgage interest, don’t exceed these amounts, itemizing may not be the best route. However, since tax situations are unique, consult a tax professional to determine the best strategy for you.

What Qualifies as a Deductible Mortgage?

Your loan must meet specific criteria to qualify for the mortgage interest deduction:

1. The Property Must Be a Qualified Residence
   • Primary residences automatically qualify.
   • One additional home (such as a vacation home) may also qualify.
   • Investment properties do NOT qualify under the same rules (for rental property deductions, refer to IRS Publication 527).
2. Your Loan Must Be Considered ‘Acquisition Indebtedness’
   • The loan must be used to buy, build, or substantially improve a primary or secondary residence.
   • Cash-out refinances used for non-home-related expenses generally do not qualify.
3. The Mortgage Balance Must Be Within IRS Limits
   • For loans taken out after December 15, 2017, interest is deductible on up to $750,000 of mortgage debt.
   • For loans before December 16, 2017, the limit is $1 million.

Examples of Mortgage Interest Deductibility

Let’s break this down with real-world examples:

✅ Deductible Mortgage Interest

• You purchase a $500,000 home with a $400,000 mortgage. Since the loan was used to buy the home and is within the $750,000 limit, the interest is deductible (assuming you itemize).

❌ Non-Deductible Mortgage Interest

• You pay cash for a home, then take out a $400,000 cash-out refinance for personal expenses. Since the loan wasn’t used to buy, build, or improve the home, the interest is NOT deductible.

✅ Pre-2017 Loan Refinancing

• You have a $950,000 mortgage from before 2017 and refinance it without increasing the balance. You can still deduct interest on the full amount under the $1 million rule.

What About Investment Properties?

Investment properties follow different tax rules. While mortgage interest on a rental property isn’t deducted as a personal itemized deduction, it may be deductible as a business expense. If you own rental properties, refer to IRS Publication 527 or consult a tax professional.

Need Help Navigating Your Mortgage Strategy?

Understanding the mortgage interest deduction is just one piece of the puzzle. At Martini Mortgage Group, we help homeowners make informed financial decisions that align with their homeownership goals.

Thinking about buying, refinancing, or exploring your mortgage options? Let’s chat. We’re here to ensure your mortgage strategy is tailored for maximum benefit. Contact us today!