Mortgage Interest Deduction 2026: The $750k Limit, PMI Write-Off, and How to Claim It

The 2026 Mortgage Interest Deduction at a Glance: What OBBBA Changed

For tax year 2026, two things you should know about the home mortgage interest deduction both come from the same law. The One Big Beautiful Bill Act (OBBBA, Public Law 119-21), signed July 4, 2025, made the $750,000 limit on deductible mortgage debt permanent — it had been set to climb back to $1 million after 2025 — and it brought back the deduction for mortgage insurance premiums (PMI) that had lapsed after 2021. Both changes take effect for 2026 returns. For most homeowners, though, the deduction only matters if your itemized deductions beat the 2026 standard deduction of $16,100 (single) or $32,200 (married filing jointly).[11, 14, 15, 12]

The mortgage interest deduction is one piece of what the tax code calls qualified residence interest under 26 U.S.C. §163(h): the interest you pay on a loan secured by your main home or a second home, used to buy, build, or improve it. This guide walks through the dollar limits, the rules for second homes and home-equity loans, the restored PMI write-off and its income phaseout, mortgage points, the all-important itemize-versus-standard decision, and exactly how to claim everything on Schedule A. Every figure is drawn from IRS publications, the U.S. Code, and other authoritative sources, verified in June 2026.[3, 1]

What Counts as Deductible Mortgage Interest

You can deduct home mortgage interest only on debt that meets three conditions: the loan must be secured by your home, the home must be a qualified residence (your main home or one second home), and the debt must be acquisition indebtedness — money borrowed to buy, build, or substantially improve that home. IRS Tax Topic 505 puts it plainly: "Qualified mortgage interest includes interest and points you pay on a loan secured by your main home or a second home." A loan that is not secured by the residence — an unsecured personal loan you use for a renovation, for example — produces interest that is not deductible as mortgage interest.[4, 3]

The tax code splits home loans into two buckets. Acquisition debt is anything borrowed to buy, build, or substantially improve the home and secured by it — your purchase mortgage, a construction loan, or a home-equity loan spent on a kitchen remodel. Home-equity debt is borrowing against your home for any other purpose. The dollar limit explained next and the home-equity rules in a later section both turn on this distinction, so it pays to know which bucket each of your loans falls into. The detailed rules live in IRS Publication 936, Home Mortgage Interest Deduction.[1, 4]

The $750,000 Limit and the $1 Million Grandfather Rule

You cannot deduct interest on an unlimited mortgage. For home loans taken out after December 15, 2017, interest is deductible only on the first $750,000 of acquisition debt ($375,000 if married filing separately), as Publication 936 states. Debt incurred on or before December 15, 2017 is grandfathered at the older, higher limit of $1 million ($500,000 if married filing separately). The lower $750,000 cap came in with the 2017 Tax Cuts and Jobs Act and was scheduled to disappear after 2025 — but the OBBBA made it permanent.[1, 3]

Making the $750,000 cap permanent was a deliberate policy choice. The Tax Foundation lists it among the law's individual provisions as a move to "make the $750,000 principal limit for the home mortgage interest deduction permanent," and the law firm Nelson Mullins confirms the OBBBA "retains the $750,000 principal limitation and makes the home mortgage interest deduction permanent." Practically, that removes a planning headache: buyers no longer have to guess whether the cap would snap back to $1 million, and homeowners with large mortgages know the rules that apply when they purchase will keep applying.[14, 24]

Mortgage Insurance Is Deductible Again in 2026 (PMI, FHA, VA, USDA)

For the first time since 2021, premiums for qualified mortgage insurance are deductible again, treated as home mortgage interest. The clearest live proof is the IRS's own Instructions for Form 1098 (Rev. December 2026), which restore Box 5 for "Mortgage insurance premiums" and define qualified mortgage insurance as a contract "issued after December 31, 2006, and provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service … and private mortgage insurance." Analysts agree on the effective date: Thomson Reuters writes that "beginning in 2026, the 2025 Act permanently reinstates the treatment of mortgage insurance premiums on acquisition debt as qualified mortgage interest for tax years beginning after 2025."[10, 23, 24]

The restored deduction covers the four kinds of mortgage insurance American borrowers actually pay. Private mortgage insurance (PMI) is required on conventional loans with less than 20% down, the CFPB explains, and typically costs roughly 0.3%–1.5% of the loan per year. FHA loans carry an upfront premium of 1.75% plus an annual premium that for most 30-year loans runs about 0.50%–0.55%, per the HUD FHA Resource Center. VA loans charge a one-time funding fee of 1.25%–3.3% and require no monthly mortgage insurance, the VA notes — and the VA has confirmed that funding fee can be deducted as mortgage insurance. USDA loans add a 1.00% upfront guarantee fee and a 0.35% annual fee, per USDA Rural Development.[17, 18, 19, 20, 21, 22]

The premium deduction comes with an income test that the interest deduction does not have. Under §163(h)(3)(E), the deductible amount is reduced by 10% for every $1,000 ($500 if married filing separately) that your adjusted gross income exceeds $100,000 ($50,000 MFS), and it disappears entirely once AGI reaches $109,000 ($54,500 MFS). Because the cut-off is on AGI rather than taxable income, the premium write-off is squarely a middle-income benefit; higher earners get nothing from it even though they still deduct their mortgage interest. The next section works the phaseout in numbers.[3, 10]

How the PMI Deduction Phaseout Works, with Numbers

Three quick examples show the income phaseout in action, assuming $2,000 of mortgage insurance premiums for the year. Example A — AGI $95,000: below the $100,000 threshold, so the full $2,000 is deductible. Example B — AGI $104,500: AGI exceeds $100,000 by $4,500, which counts as five $1,000 increments (round up any fraction), a 50% reduction — only $1,000 of the premiums is deductible. Example C — AGI $109,000 or more: the reduction reaches 100% and nothing is deductible. For married-filing-separately taxpayers, halve every figure: the phaseout runs from $50,000 to $54,500 in $500 steps.[3, 10]

Home Equity Loan and HELOC Interest: Deductible Only If You Improve the Home

Interest on a home equity loan or HELOC is sometimes deductible and sometimes not — and the test is what you do with the money. The IRS's real-estate FAQ states that for tax years after 2017, home equity interest is deductible only if "the proceeds of the loan are used to buy, build, or substantially improve the taxpayer's residence" that secures it. Use a HELOC to add a primary suite or replace a roof, and the interest can qualify; use it to pay off credit cards, buy a car, or fund a vacation, and the interest is not deductible. This rule came in with the 2017 tax law and the OBBBA made it permanent.[6, 8]

When a home equity loan is used to improve the home, its balance counts as acquisition debt and shares the same $750,000 aggregate cap with your first mortgage — the two are not separate allowances. A homeowner with a $700,000 first mortgage and a $100,000 HELOC spent on a legitimate addition has $800,000 of acquisition debt, so interest on $50,000 of it falls outside the cap. If you carry a HELOC, our dedicated 2026 HELOC guide covers draw-versus-repayment phases, variable rates, and the same interest rules in more depth.[3, 4]

Which Homes Qualify: Main Home, Second Home, and the Facilities Test

You can claim the deduction on up to two homes: your main home and one second home that you choose. The dwelling has to be a real place to live — it must have sleeping, cooking, and toilet facilities — which is why Topic 505 lists eligible homes as "a house, cooperative apartment, condominium, mobile home, house trailer, or houseboat." A bare plot of land or a recreational vehicle without those facilities does not qualify. IRS Publication 530, Tax Information for Homeowners, collects the homeowner deductions in one place.[4, 2]

If you own more than one second home, you generally pick one each year to treat as the qualified second residence. A second home you also rent out can still qualify, but only if you use it personally for the greater of 14 days or 10% of the days it is rented, as Publication 936 explains. A property you rent out full-time and never live in is not a second residence at all — its mortgage interest is a rental business expense, covered in the reporting section below.[1]

Are Mortgage Points Deductible? Year-of-Payment vs. Amortized

Points — sometimes called loan origination fees or discount points — are a form of prepaid interest, and they are deductible, but the timing depends on the rules. IRS Tax Topic 504 lists eight tests that, if all met, let you deduct points in full in the year you pay them: the loan is secured by your main home, paying points is an established practice in your area, the points are within the usual range, they are figured as a percentage of the loan, they are clearly shown on your settlement statement, and you put in funds at closing at least equal to the points, among others. The classic case that meets all eight is buying or building your principal residence.[5, 1]

When the tests are not met, the points are not lost — they are simply deducted ratably over the life of the loan. Topic 504 specifically notes that "points to obtain a new mortgage, to refinance an existing mortgage, or paid on loans secured by your second home are deducted ratably over the term of the loan." So if you pay $3,000 in points to refinance a 30-year loan, you deduct $100 per year, not $3,000 up front. If you later pay that loan off or refinance again, any remaining un-deducted points generally become deductible in that year.[5, 1]

Itemize or Take the Standard Deduction? The 2026 Math

Here is the catch that surprises many homeowners: the mortgage interest deduction only helps if you itemize, and itemizing only beats the standard deduction when your write-offs add up to more than it. For 2026, IRS IR-2025-103 sets the standard deduction at $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household. So a married couple needs mortgage interest plus their other itemized deductions to clear $32,200 before itemizing saves a dollar.[12, 13]

The other big number on Schedule A is state and local taxes (SALT), where the 2026 cap is about $40,400. Combine a SALT deduction near that cap with healthy mortgage interest and the itemizing decision tips quickly — which is exactly why high-tax-state homeowners with large mortgages are the most likely to benefit. Our companion guides to the 2026 standard deduction and tax brackets and the 2026 SALT deduction cap work through both numbers. Whichever side you land on, run your own figures before assuming the mortgage deduction lowers your bill.[8, 16]

How to Calculate Your Deduction When the Loan Exceeds $750,000

If your mortgage is larger than the cap, you do not lose the whole deduction — you deduct the fraction of interest that corresponds to the first $750,000. Publication 936 provides a worksheet (Table 1) that uses the average balance of your mortgage over the year. The shortcut is a ratio: deductible interest ≈ total interest × ($750,000 ÷ average mortgage balance). For a $1,000,000 mortgage at 6.5%, that is roughly $65,000 of interest × ($750,000 ÷ $1,000,000) = about $48,750 deductible, with the remaining ~$16,250 nondeductible.[1, 3]

Two refinements matter. First, if you hold both grandfathered $1 million debt and newer debt, the rules stack the grandfathered debt first against the higher limit, with Publication 936 walking through the ordering. Second, the average-balance method means a mortgage you pay down during the year, or one you take out mid-year, produces a blended figure rather than the year-end balance. When the arithmetic gets complicated — multiple loans, a refinance, or a mid-year purchase — the Publication 936 worksheet, or tax software that implements it, is the safest way to land on the right number.[1]

Refinancing, Cash-Out, and What Happens to Your Limit

Refinancing does not automatically reset your limit. When you refinance grandfathered pre-2018 debt, the $1 million limit carries over only up to the balance of the old loan; borrow more and the extra is treated as new debt under the $750,000 cap. And the use test still governs any cash you pull out: a cash-out refinance is acquisition debt only to the extent the cash buys, builds, or improves the home. Cash taken out to consolidate debt or cover other expenses is not deductible acquisition interest, the same principle that governs HELOCs.[1, 3]

Remember too that points paid to refinance are generally amortized over the new loan's term rather than deducted upfront (see the points section above). If you are weighing whether a refinance makes sense in the first place — comparing the new rate, closing costs, and break-even point — our mortgage refinancing guide walks through that decision before you get to the tax treatment.[5, 1]

How to Claim It: Form 1098, Schedule A, and Box 5

Each January your lender sends Form 1098, Mortgage Interest Statement, if you paid $600 or more in interest during the year. Its boxes map directly to your deduction: Box 1 shows the mortgage interest you paid, Box 5 shows mortgage insurance premiums (restored for 2026), and Box 6 shows deductible points. The Instructions for Form 1098 spell out exactly what belongs in each box.[9, 10]

You report the deduction on Schedule A (Form 1040), in the "Interest You Paid" section, on lines 8a through 8e. The Schedule A instructions tell you to enter Form 1098 interest on line 8a, interest not reported on a 1098 (for example, seller-financed purchases) on line 8b with the seller's name and address, points not on a 1098 on line 8c, and to total them on line 8e. Keep your Form 1098, settlement statement, and records of how any home-equity money was spent — substantiation is on you if the IRS asks.[7, 8]

Worked Examples: What the 2026 Rules Mean in Dollars

Example 1 — first-time buyer. A single filer buys with a $400,000 mortgage at 6.5% (about $25,800 of first-year interest) and pays roughly $2,000 in PMI. With AGI of $90,000, both the interest and the full PMI are deductible. Add some state taxes and the total easily tops the $16,100 single standard deduction, so itemizing wins, and the deduction is worth their interest and PMI times their marginal rate. Example 2 — move-up buyer. A couple takes a $900,000 mortgage at 6.5% (~$58,000 interest), but only $750,000 is within the cap, so about 83% — roughly $48,300 — of the interest is deductible. With AGI of $200,000 their PMI deduction is fully phased out, but the large interest deduction still makes itemizing clearly worthwhile.[1, 12]

Example 3 — grandfathered owner. A homeowner still carrying a $950,000 mortgage taken out in 2016 falls under the $1 million grandfather limit, so all of the interest remains deductible — none of it is capped at $750,000. The lesson across all three: the headline rules ($750,000, PMI, the standard-deduction hurdle) interact differently for every borrower, so the only way to know your real benefit is to run your own numbers. A mortgage and amortization calculator shows exactly how much of each payment is interest in a given year — the figure that drives the whole deduction.[3, 16]

Mortgage Interest Deduction 2026: Frequently Asked Questions

A few remaining questions come up again and again. The answers below pull together the rules from the sections above; for anything specific to your return, the IRS publications cited throughout and a qualified tax professional are the right next stop.[1]