What Percentage of Mortgage Interest Is Deducted on Tax Returns?

After you buy the house, use tax deductions to save.
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Buying a home can take a huge bite out of your savings and require you to commit to decades of mortgage payments. Home ownership does, however, allow you to take many tax deductions that are unavailable to renters. Enjoy saving on your tax return by taking a mortgage interest deduction.


Mortgage interest is an amount paid for taking out a first or second mortgage, refinance loan or home-equity loan. Interest is calculated as a percentage of your loan and provides a way for a lender to earn money by lending to you. Interest rates vary depending on the lender and factors like your financial status and credit score.

How Much?

You may deduct all of your mortgage interest on your tax return as long as you meet Internal Revenue Service (IRS) requirements. For starters, you can only deduct mortgage interest if your loan is secured by your home. If you have a first or second mortgage that is secured by your primary residence or second home, the interest you pay is usually deductible. If you have a home loan that is not secured by a first or second home, the IRS considers the mortgage a personal loan and will not allow you to deduct the interest. As such, if you have a third or fourth mortgage, you won't be able to deduct any of the interest you pay for it.

Your Home

While you may think of a house when discussing mortgage interest, you can call all sorts of properties your home. Of course, you may deduct mortgage interest for a traditional house, but cooperatives and condominiums count as well. You can even count a mobile home or a boat, as long as you use it as a first or second home and it has a bathroom, is equipped for cooking and has sleeping facilities.

Primary Borrower

If you are paying the interest on someone else's mortgage, you're a sweetheart, but you aren't eligible for a deduction on your tax return. To deduct mortgage interest, you must be the primary borrower. If you and your spouse have a mortgage together, you are both primary borrowers. If, however, you've been helping a down-and-out relative with his interest payments, you're out of luck.

Limited Deductions

You can only deduct 100 percent of your mortgage interest if all of the mortgages for your first or second home equal $1,000,000 or less. If your combined mortgages exceed $1,000,000, you can only deduct the interest paid for the first $1,000,000 of your mortgages. Watch out if you're married but filing separately, as your limit will be $500,000 instead. Home-equity loan interest is a little different, and you can only deduct 100 percent of the interest for loans up to $100,000. However, you can use the home-equity loan money for whatever you want, even if it's for traveling around the world, without losing the deduction. Additionally, excess mortgage amounts over $1,000,000 may be treated as home-equity debt and allow you to deduct interest for up to an additional $100,000 worth of mortgage.

Refinance Loans

Typically, you can deduct 100 percent of the interest for a refinance loan but only up to the balance of the original mortgage. For example, if the original mortgage balance was $100,000 and the refinance loan is for $140,000, you can only deduct the full amount of the interest for the $100,000 original mortgage. On a happy note, however, the additional $40,000 counts as home-equity debt, and you can deduct all of it since it does not exceed the $100,000 home-equity debt maximum.

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