What this line means
Mortgage interest and points you paid during the year on loans secured by your main home or second home, as reported to you on Form 1098. For mortgages taken out after December 15, 2017, interest is deductible only on the first $750,000 of mortgage debt ($375,000 if married filing separately). Mortgages from before that date use the previous $1 million limit.
Does this apply to you?
- You have a mortgage on your primary residence and received a Form 1098 from your lender
- You have a mortgage on a second home (vacation home) and paid interest during the year
- You paid points when you took out or refinanced your mortgage
- You have a home equity loan or HELOC where the proceeds were used to buy, build, or substantially improve the home
Easy to overlook
Home equity loan interest is only deductible if used for home improvement Before 2018, you could deduct interest on home equity loans regardless of how you used the money. Now, the interest is deductible only if the loan was used to buy, build, or substantially improve the home that secures the loan. Using a HELOC to pay off credit cards or fund a vacation means the interest is not deductible. 1 Tax Cuts and Jobs Act — mortgage interest deduction limits
The $750,000 limit applies to total mortgage debt, not per-property If you have a $500,000 mortgage on your primary home and a $400,000 mortgage on a vacation home, your total is $900,000. Interest is deductible only on the first $750,000 of that combined debt. You need to prorate the interest deduction based on the ratio of the limit to your total debt. 2 IRS Schedule A instructions — Line 8a
Watch out for this
Deducting the full mortgage interest from Form 1098 when your total mortgage debt exceeds $750,000. The lender reports all interest paid on Form 1098 regardless of the deduction limit. You must calculate the deductible portion yourself and enter only that amount. Tax software handles this if you enter the loan balance correctly.
Footnotes
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Tax Cuts and Jobs Act of 2017, Section 11043 (Mortgage interest limits). https://www.congress.gov/bill/115th-congress/house-bill/1 ↩
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IRS Schedule A (Form 1040) Instructions, Line 8a. https://www.irs.gov/instructions/i1040sca ↩