Yes, mortgage interest is tax-deductible on your primary residence and one secondary home, up to $750,000 in mortgage debt ($1 million for mortgages taken before December 15, 2017). On a $400K loan at 6.5%, you would pay approximately $25,600 in interest the first year, all deductible if you itemize. Texas has no state income tax, so this deduction applies to your federal return.
How the Deduction Works: Itemizing vs Standard Deduction
Mortgage interest is an itemized deduction, which means you can only deduct it if you forgo the standard deduction. The standard deduction for 2025 is $15,000 for single filers and $30,000 for married couples filing jointly. If your total itemized deductions (mortgage interest + property taxes + state and local taxes up to $10,000 + charitable donations) exceed the standard deduction, itemizing saves you money. If not, you take the standard deduction and do not get a separate benefit from mortgage interest.
Mortgage Debt Limits
The mortgage interest deduction applies to the first $750,000 of mortgage debt for homes purchased after December 15, 2017. For mortgages taken before that date, the limit is $1 million. If your mortgage is larger than $750K, the interest on the excess is not deductible. The limit applies per married couple, not per property.
What You Can and Cannot Deduct
Deductible: Mortgage interest on your primary residence and one secondary home, mortgage discount points (deducted over the life of the loan or fully in the year paid if certain conditions are met), and prepayment penalties.
Not deductible: Homeowner's insurance premiums, mortgage insurance premiums (PMI and MIP were deductible through 2021 and may be renewed by Congress), property taxes (deductible separately under the SALT cap), and HOA fees.
Itemizing vs Standard Deduction: When It Makes Sense
For most homeowners with a mortgage of $300K or more at current interest rates, itemizing makes sense. The math: on a $400K mortgage at 6.5%, year-one interest is about $25,600. Add $10,000 in SALT deductions (property taxes) and perhaps $2,000 in charitable donations, and you have $37,600 in itemized deductions. Compare that to the $30,000 married standard deduction. That means $7,600 in additional deductions, saving about $1,900 in federal tax at the 25% marginal rate.
How to Maximize the Deduction
- Bundle charitable donations into alternating years to exceed the standard deduction threshold.
- Pay mortgage points at closing to increase first-year interest deductions.
- Keep good records of all deductible expenses throughout the year.
- Consider doing a Roth IRA conversion in years you itemize to fill up lower tax brackets.
