Understanding the Deductibility of Mortgage Interest

shaybachelder
7 days ago
3 min read

For many homeowners, the mortgage interest deduction remains one of the most valuable tax benefits available. When interest rates were low, it didn't have as much impact but the bright side of the higher interest rates we are seeing now is the potential for larger tax savings.

As the tax rules have evolved, so have the details of what qualifies. Here’s a clear breakdown of which homes and debts are eligible, the limits that apply, and how second homes fit in.

What Homes Qualify

To deduct mortgage interest, the loan must be secured by a qualified residence, which includes:

Your main home, where you live most of the time.
One additional home, such as a vacation property, as long as it’s not primarily a rental.

If you rent out your second home, you must personally use it for more than the greater of 14 days or 10% of the rental days to keep it eligible as a qualified residence.

What Debt Qualifies

There are two main types of debt that qualify for the deduction:

Acquisition Debt – The mortgage you use to buy, build, or substantially improve your home. The key is that the loan must be secured by the property itself.
Home Equity Debt – Interest is deductible only if the loan proceeds are used to buy, build, or improve your home. Using a home equity line for things like debt consolidation or tuition does not qualify under current tax law.

Maximum Deductible Amounts

How much mortgage interest you can deduct depends on when you took out your loan:

Before December 15, 2017: Interest on up to $1,000,000 of qualified acquisition debt ($500,000 if married filing separately) is deductible.
After December 15, 2017: The limit drops to $750,000 ($375,000 if married filing separately).

If your loan balance exceeds these limits, only a portion of the interest may be deductible.

What About Second Homes?

You can generally claim mortgage interest on one primary residence and one second home, as long as the total of all qualified loans stays within the $750,000 or $1,000,000 cap.

If your second home is rented out for much of the year, it’s considered a rental property for tax purposes, and the deduction shifts to Schedule E instead of Schedule A — with different rules and potential tax benefits.

A second home can be any property you own and use for personal purposes, as long as it’s secured by the mortgage. It doesn’t need to be the traditional “vacation home” — it just has to be a place you can live in and use as a residence.

Common examples include:

A vacation home at the beach, in the mountains, or near a lake.
A condo or townhouse used for personal getaways.
A mobile home, RV, or boat that has basic living amenities — sleeping, cooking, and toilet facilities.
A tiny home or cabin on land you own.
Even a boat could qualify if it has sleeping quarters and a bathroom.

As long as the property meets those living requirements and the loan is secured by the property, it can qualify as a second home.

Additional Tips to Keep in Mind

You must itemize deductions on Schedule A to benefit from the mortgage interest deduction.
Points paid to obtain your mortgage may also be deductible.
State and local tax (SALT) limits can affect your overall deductions, so it’s important to look at the big picture.

The Bottom Line

The mortgage interest deduction can provide significant savings, but the rules can be tricky — especially if you’ve refinanced, have multiple properties, or are near the debt limits. At Casler Financial, we help homeowners navigate these details with clarity and confidence. If you’re unsure whether your loan qualifies or how much interest you can deduct, we’re happy to review your situation and help you make the most of your home-related tax benefits.

Advisory sessions and virtual tax consultations are available year round. Book online here: https://www.caslerfinancial.com/scheduling