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For many homeowners, mortgage interest is the largest itemized deduction. Whether it helps you depends on your overall tax picture and on a few rules about the type and size of the loan.

You must itemize

Mortgage interest is deducted on Schedule A, so it only reduces your tax if your total itemized deductions exceed your standard deduction. Many homeowners find the standard deduction is larger, especially with a smaller or older loan. It is worth running both calculations each year.

What qualifies

Generally, interest on a loan used to buy, build or substantially improve your main home or a second home, and secured by that home, can qualify. Both homes must meet the IRS definition of a qualified home, which includes houses, condominiums, cooperatives, mobile homes and boats with sleeping, cooking and toilet facilities.

Limits on the loan amount

Only interest on a limited amount of acquisition debt is deductible. The cap depends on when the loan was taken out and is set by law, so check the current figure on irs.gov or ask us.

Home equity loans and lines of credit

Interest on a home equity loan or line of credit is deductible only when the money is used to buy, build or substantially improve the home that secures it. If you used the funds for tuition, credit cards or a vacation, the interest is generally not deductible. Keep records showing how the money was spent.

Reporting and records

• Your lender sends Form 1098 showing the interest you paid. Check it against your own records.
• If you share the loan with someone who is not your spouse, each person can generally deduct what they actually paid, subject to the rules.
• In the year you buy or sell, interest is often split between your settlement statement and the lender's form, so review both.
• Points and certain closing costs have separate rules. See our article on the deductibility of points.

Other situations

If you rent part of the home, use it partly for business or have a home office, the interest may need to be allocated between personal and business use. Higher-income taxpayers and those subject to the alternative minimum tax should also confirm that their deductions are not limited in other ways.

The IRS explains the details in Publication 936, available at irs.gov. If you are not sure how your loan is treated, reach out to us and we will review it with your return.