Mortgage Tax Deductions 2027: What You Can (and Cannot) Deduct

Under the Tax Cuts and Jobs Act (TCJA), which remains in effect through at least 2025 and has been extended in various forms: you can deduct mortgage interest on up to $750,000 of qualified residence debt ($375,000 if married filing separately) secured by your primary or secondary residence. "Qualified residence debt" includes acquisition debt (used to buy, build, or improve the home) and, since 2018, home equity debt is deductible only if the proceeds were used to buy, build, or substantially improve the residence. Interest on home equity debt used for other purposes (debt consolidation, vacations) is not deductible. Your lender will issue Form 1098 (Mortgage Interest Statement) each January showing the deductible interest paid. Full rules at IRS Publication 936 — Home Mortgage Interest Deduction.

It depends on your total itemized deductions vs the 2027 standard deduction amounts (projected indexed figures): Single: ~$14,600; Married filing jointly: ~$29,200; Head of household: ~$21,900. To benefit from itemizing, your total itemized deductions (mortgage interest + SALT up to $10,000 + charitable contributions + other) must exceed the standard deduction. At a 6.5% rate on a $400,000 mortgage, first-year interest ≈ $25,500. Add $10,000 SALT cap and some charitable giving: total itemized ≈ $37,000. Married filers: $37,000 − $29,200 = $7,800 additional deduction vs standard, saving approximately $1,872 at the 24% bracket. Always run both scenarios. See IRS Topic 505 — Interest Expense.

Yes — but with a critical limit. Under the TCJA, the State and Local Tax (SALT) deduction is capped at $10,000 per return ($5,000 if married filing separately) for the combined total of state income taxes (or sales taxes) and property taxes. If you pay $8,000 in state income tax and $7,000 in property tax, you can only deduct $10,000 total — not $15,000. High-tax states (CA, NY, NJ, IL) are most affected — many homeowners in those states hit the SALT cap with state income tax alone, making additional property tax deductions worthless at the federal level. Property taxes paid on investment or rental properties are fully deductible as a business expense (Schedule E) without the SALT cap. See IRS Topic 503 — Deductible Taxes.

Yes — for a primary residence purchase, discount points paid at closing are generally fully deductible in the year paid if they meet IRS requirements: the points must be calculated as a percentage of the stated principal, the payment is established practice in your area, the points are shown on the settlement statement, and the funds used were not borrowed from the lender. Seller-paid points on your behalf are also deductible by the buyer. Points on a refinance must be amortized (deducted ratably over the life of the loan, not all at once in year one) unless they were paid to improve a primary residence. If you refinance again before the amortization period ends, any remaining unamortized points are deductible in the year of the new refinance. Full rules at IRS Topic 504 — Home Mortgage Points.

Common non-deductible costs: (1) Homeowner's insurance premiums — not deductible on a primary residence (deductible on a rental property); (2) PMI/MIP (mortgage insurance) — the PMI deduction expired with the 2021 tax year; it has not been renewed; (3) Home repairs and maintenance — patching a roof, painting, replacing appliances; (4) Closing costs (other than points) — title insurance, appraisal fees, recording fees; (5) Home equity loan interest used for non-home purposes — as noted above; (6) Depreciation — not available for a personal residence. Capital improvements do add to your cost basis, reducing taxable gain when you sell. See IRS Publication 530 — Tax Information for Homeowners for the complete list.

When you sell your primary residence, you can exclude up to $250,000 of capital gain from income (single) or $500,000 (married filing jointly) if you owned and lived in the home for at least 2 of the last 5 years. This exclusion applies to each sale — you can use it once every two years. The gain is the sale price minus your adjusted cost basis (purchase price + cost of capital improvements). Example: purchased for $350,000, made $50,000 in improvements (adjusted basis = $400,000), sold for $700,000. Gain = $300,000. Married couple: $300,000 − $500,000 exclusion = $0 taxable gain. If the gain exceeds the exclusion, the excess is taxed at capital gains rates (0%, 15%, or 20% depending on income). Report on IRS Form 8949 and Schedule D.