Mortgage Interest Deduction Calculator 2026

How the mortgage interest deduction works in 2026

The mortgage interest deduction lets homeowners write off the interest they pay on up to $750,000 of acquisition debt, meaning the loan used to buy, build, or substantially improve a primary or second home. The Tax Cuts and Jobs Act cut the cap from $1 million to $750K in 2017, and the One Big Beautiful Bill Act (P.L. 119-21 Sec. 70108) made that limit permanent in 2026. Loans taken out on or before December 15, 2017 are grandfathered at the old $1,000,000 ceiling.

This is an itemized deduction. You report it on Schedule A, so it only helps your tax bill if your total itemized deductions exceed the standard deduction ($16,100 single, $32,200 MFJ, $24,150 HoH for 2026). Only acquisition debt qualifies. Home-equity loan funds spent on anything other than buying or improving your home are not deductible.

The IRS uses the average-balance method from Pub 936 Table 1: the cap applies to the average outstanding balance during the year, and interest is prorated when the balance exceeds the limit. A $400,000 mortgage at 6.5% generates roughly $26,000 of fully deductible interest. What about a $900,000 mortgage at the same rate? Only $750K / $900K (83.3%) of the interest counts, so $48,750 of total interest becomes about $40,600 deductible.

Mortgage interest and the new $40,400 SALT cap

State and local taxes (SALT) are the other big chunk of most homeowners' itemized return. The OBBB lifted the cap from the $10,000 ceiling that had been in place since 2018 up to $40,400 for 2026 (P.L. 119-21 Sec. 70120, IRC Sec. 164(b)(7)). The cap climbs 1% per year through 2029, then snaps back to $10,000 in 2030.

SALT covers state income tax (or state sales tax, pick one) plus state and local property tax. MFS filers get half the cap, $20,200. A phase-down kicks in once modified AGI passes $505,000: the cap shrinks 30 cents per dollar over the threshold but never drops below the legacy $10,000 floor.

High-property-tax states like New York, New Jersey, California, and Illinois benefit the most from the bigger SALT cap. A New Jersey homeowner paying $12,000 in property tax plus $8,000 in state income tax can now deduct the full $20,000, versus only $10,000 under the old cap.

When itemizing beats the standard deduction

The math is simple: add up your mortgage interest, SALT (capped), charitable giving, and other Schedule A items. If the total exceeds your standard deduction, itemize. If not, take the standard.

Couples close to the break-even should consider bunching: concentrating charitable giving or elective medical expenses into alternate years to clear the itemized threshold every other year and take the standard deduction in between.

Common mistakes that disqualify mortgage interest

• HELOC funds used for non-home purposes. Cash you pull from a home equity line to pay for college, a car, or credit-card debt is not deductible. Only HELOC interest tied to buying, building, or substantially improving the home qualifies.
• Cash-out refi above the original balance. When you refinance and pull out cash, anything above the old principal is treated as new acquisition debt subject to the $750K cap, and only if it's spent on home improvements.
• Missing Form 1098 from the lender. Your servicer issues Form 1098 by January 31 showing interest paid. Without it, the IRS will ask questions. Keep it with your tax records.
• Second home over the cap. The $750,000 limit is a combined cap across your primary and second home. Two $500K mortgages will get prorated; only the first $750K of combined principal counts.