Home Mortgage Interest
This guide has been updated for OBBBA 2025
A deduction is allowed for interest paid on loans secured by a taxpayer’s primary home and a second home. Loans are allocated to two categories: acquisition debt and home equity debt. Interest deductions are limited, depending on the category of the underlying debt.
Overview
Acquisition Debt
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Debt incurred to purchase, construct or substantially improve principal or second home.
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It must be secured by the home(s).
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Debt limits, except grandfathered debt:
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$1,000,000 ($500,000 for MS) for loans made before December 16, 2017.
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$750,000 ($375,000 for MFS) for loans made after December 15, 2017.
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Limit declines as mortgage is paid off.
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Spouse buy-out debt is acquisition debt.
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Deductible against both regular tax and the AMT.
Equity Debt - Not deductible after 2017 as home mortgage interest regardless of when debt incurred. May be traceable to other deductible uses.
Excess Debt
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Debt in excess of acquisition debt.
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Not deductible as home mortgage interest.
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Excess debt can be traced to another deductible purpose.
Allocating Debt
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Home mortgage interest cannot be allocated to other uses.
Home Under Construction - Can be a qualified home during a construction period of up to 24 months.
Related IRC and IRS Publications and Forms
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Pub 936 – Home Mortgage Interest Deduction
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Pub 17 – You Federal Income Tax
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Instructions – Form 1040 (Schedule A&B)
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Form 1098 – Mortgage Interest Statement
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Big Book Chapter 215 – Interest Tracing Rules
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IRC Sec 163(h)(3)