A complete guide for U.S. homeowners on how the mortgage interest deduction works in 2025, including the $750,000 loan cap, rules for points, private mortgage insurance (PMI), and refinancing.
Introduction
The mortgage interest deduction continues to be one of the most valuable tax breaks for homeowners who itemize deductions in the United States. For 2025, the IRS maintains the $750,000 cap on eligible mortgage debt, while also allowing deductions for points, PMI, and certain refinancing costs. Understanding these rules can significantly lower your taxable income and maximize your savings.
The $750,000 Mortgage Cap
Homeowners can deduct interest on up to $750,000 of mortgage debt ($375,000 if married filing separately) for mortgages taken after December 15, 2017. Mortgages issued before this date may still qualify for the old $1 million cap.
- Primary Residence: Eligible for the full deduction.
- Second Home: Deductible as long as the combined mortgage debt does not exceed the cap.
- Home Equity Loans: Deductible only if used to buy, build, or substantially improve the home.
Deducting Points in 2025
Points (also called loan origination fees or discount points) may be deductible if they represent prepaid mortgage interest.
- Immediate Deduction: Allowed if points are paid on a loan used to buy your primary residence.
- Amortized Deduction: If points are paid on a refinance, the deduction must be spread out over the life of the loan.
Private Mortgage Insurance (PMI)
For 2025, the deduction for PMI premiums remains in effect, subject to income limitations. Taxpayers with an adjusted gross income (AGI) above $100,000 ($50,000 if MFS) will see a phaseout, and the deduction disappears at higher income levels.
Refinance Rules
When refinancing, the mortgage interest deduction still applies, but with important restrictions:
- Deductible only up to the original loan balance at the time of refinancing.
- New debt beyond the original amount is deductible only if used for home improvements.
- Points paid on a refinance must be deducted over the loan’s life, unless tied to home improvements.
Example Scenario
John and Mary refinance their $600,000 mortgage in 2025 at a lower rate. They pay $12,000 in points. Instead of deducting the full $12,000 in one year, they must spread the deduction over the new 30-year loan, deducting $400 annually.
Maximizing Your Deduction
- Keep mortgage debt under the $750,000 cap.
- Track PMI payments and income limits to avoid losing eligibility.
- Consider refinancing only when long-term interest savings outweigh slower point deductions.
- Maintain detailed records of how funds are used, especially for refinances and home equity loans.
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