Mortgage Interest Deduction: Limits, HELOCs and Refinances

By Tom, CPA · Updated October 27, 2026

Part of: Tax Planning

TL;DR: Interest on up to $750,000 of debt used to buy, build or improve your main or second home is deductible, and that limit is now permanent. HELOC interest counts only when the money improved the home. Points, refinances and PMI have their own rules, and none of it helps unless you itemize.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

The tax code is 4 million words long, and the mortgage interest deduction is one of the most famous few hundred of them. It is also one of the most overrated. Real estate agents mention it the way magicians mention their assistant: loudly, while doing something else with the other hand.

Here is how the deduction actually works for 2026: the $750,000 debt limit, when HELOC interest counts, how points are treated, what happens when you refinance, and the question that decides everything, which is whether you itemize at all. Figures are as of October 27, 2026.

CPA Warning Label: The deduction is only worth the amount your itemized deductions beat the standard deduction. Never buy a bigger house for a tax break you might not even get.

The $750,000 limit, now permanent

You can deduct interest on home acquisition debt, meaning debt secured by your main home or one second home and used to buy, build or substantially improve that home. The limit is $750,000 of total acquisition debt ($375,000 married filing separately) across both homes. The 2025 tax law made this limit permanent; under the Internal Revenue Code as of October 2026, there is no scheduled return to the old $1 million cap.

Grandfathered debt: mortgages taken out on or before December 15, 2017, keep the older $1,000,000 limit ($500,000 married filing separately). Debt under a binding contract before that date that closed by April 1, 2018, is also grandfathered. If you have both old and new debt, the old debt counts first and reduces the room left under $750,000.

If your debt is above the limit, you do not lose the whole deduction. You deduct a fraction: limit divided by average balance, times interest paid. IRS Publication 936 has a worksheet for this.

A second home counts, but only one. A boat or RV with sleeping, cooking and toilet facilities can be a qualified home. A third property is not, unless it is a rental, in which case its mortgage interest goes on Schedule E as a rental expense with no $750,000 limit. See rental mortgage interest.

HELOC and home equity rules

The label on the loan does not matter. What matters is how you use the money.

• HELOC used to remodel the kitchen of the home that secures it: that is acquisition debt. Interest counts, within the $750,000 total.
• HELOC used to pay off credit cards, buy a car or pay tuition: not deductible as mortgage interest. Home equity interest used for other purposes stopped being deductible in 2018, and that rule is also permanent now.
• HELOC on your main home used to buy a rental or investment: the interest may be deductible under the interest tracing rules, as rental expense or investment interest, rather than as mortgage interest. See investment interest expense. Keep records that trace the money.

The car loan interest deduction for 2025 through 2028 is a separate, temporary rule for loans secured by a qualifying new car, not by your home. Paying for a car with a HELOC does not qualify for either deduction. See car loan interest deduction.

Points and mortgage insurance

Points (also called discount points or loan origination fees when they are prepaid interest) can be deducted in full in the year paid if they relate to buying or building your main home and meet IRS conditions: the loan is secured by your main home, paying points is normal in the area, the amount is typical, they are computed as a percentage of the loan, they show clearly on the settlement statement, and you brought at least that much of your own cash to closing. Seller-paid points count as paid by you, but they reduce your home's basis.

Points that do not meet those tests, points on a second home, and most points on a refinance are deducted evenly over the life of the loan. Appraisal fees, notary fees, mortgage note preparation and VA funding fees are not interest.

Mortgage insurance premiums (PMI, FHA mortgage insurance and similar) were not deductible from 2022 through 2025. As of October 2026, the Code again treats qualified mortgage insurance premiums on acquisition debt as deductible mortgage interest starting with 2026. The deduction phases out by 10% for each $1,000 of AGI over $100,000 ($500 over $50,000 married filing separately), so it is gone at $110,000 of AGI. Check the 2026 Form 1098 and Schedule A instructions when they are released.

Refinancing: what stays deductible

When you refinance, the new loan is acquisition debt only up to the principal balance of the old loan just before the refinance. Extra cash taken out is acquisition debt only if you spend it to substantially improve the home.

Grandfathered loans: refinancing a pre-December 16, 2017 mortgage keeps the $1 million limit for the refinanced amount up to the old balance, generally for the remaining term of the old loan.

Points on a refinance are usually spread over the new loan term. If you refinance again or pay off the loan, you can deduct the remaining unamortized points then, unless the new loan is with the same lender, in which case the remaining points are spread over the new loan.

A cash-out refinance used for an investment has the same tracing issues as a HELOC. A refinance to pay off student loans turns deductible-as-adjustment student loan interest into nondeductible personal interest, which is a quiet way to lose a deduction. See student loan interest deduction.

Is it worth itemizing?

This is where the famous deduction often disappears. You only benefit if total itemized deductions beat the standard deduction: $32,200 married filing jointly, $16,100 single and $24,150 head of household for 2026.

Your itemized total is mortgage interest, plus state and local taxes up to the $40,400 cap (reduced for MAGI above $505,000, not below $10,000), plus charitable gifts above 0.5% of AGI, plus medical expenses above 7.5% of AGI, plus a few others. The value of the mortgage deduction is only the amount by which your itemized total exceeds the standard deduction, times your marginal rate.

The bigger SALT cap that began in 2025 means more homeowners in high-tax states itemize again. But in a low-tax state with a modest mortgage, the mortgage deduction is often worth zero. The itemized vs standard deduction guide runs through it.

For early retirees, the deduction also tends to fade as the mortgage amortizes and income falls. See mortgage payoff vs invest and the standard deduction for early retirees.

Illustration: the real value of the deduction

Illustration 1, a big mortgage. A married couple took a $900,000 mortgage in 2023 to buy their main home. In 2026 the average balance is $880,000 and they pay $56,000 of interest. Only $750,000 of the average balance qualifies, so the deductible share is $750,000 divided by $880,000, or 85.2%. Deductible interest: about $47,730.

Add $40,400 of SALT and $6,000 of charity (after the floor) for itemized deductions of about $94,130. The excess over the $32,200 standard deduction is $61,930. In the 24% bracket, the tax benefit of itemizing is about $14,860. The mortgage interest's own marginal contribution is the full $47,730 times 24%, about $11,455, because the SALT and charity alone already exceed the standard deduction.

Illustration 2, a modest mortgage in a low-tax state. A married couple pay $9,000 of mortgage interest, $6,500 of state and property taxes, and give $3,000 to charity. Itemized total: $18,500. Standard deduction: $32,200. They take the standard deduction. Tax value of the mortgage interest: $0.

Assumptions: 2026 standard deduction, no AMT, no mortgage insurance, charity already reduced by the 0.5% floor. Numbers are illustrations, not projections.

Records and forms

• Your lender sends Form 1098 if you paid $600 or more of mortgage interest. It shows interest, points and, again for 2026, mortgage insurance premiums.
• If you paid interest to an individual seller (seller financing), you need their name, address and taxpayer ID on Schedule A.
• Keep closing statements for points and basis. The home-buying tax checklist covers what to save.
• If you used loan money for improvements, keep invoices to prove it.

More itemized deduction guides are in the tax planning hub.