Mortgage Interest Deduction 2026: Current Cap, Who Actually Benefits, and Implications

The mortgage interest deduction is one of the most widely cited benefits of homeownership, but its actual value to most borrowers is smaller than commonly assumed. The 2017 Tax Cuts and Jobs Act capped acquisition debt for new loans and simultaneously raised the standard deduction, eliminating itemized deductions entirely for a large share of homeowners.

The $750,000 Acquisition Debt Cap

For mortgage debt originated after December 15, 2017, the mortgage interest deduction applies only to the first $750,000 of acquisition debt. Mortgages used to buy, build, or substantially improve a primary or secondary residence qualify as acquisition debt. On a $1,000,000 mortgage, only the interest attributable to the first $750,000 of the balance is deductible.

Grandfathered Loans at $1,000,000

Loans originated on or before December 15, 2017 retain the prior $1,000,000 acquisition debt limit. Refinancing a grandfathered loan preserves the higher limit as long as the new loan does not exceed the balance of the original loan. A cash-out refinance beyond the existing balance could subject the incremental debt to the lower $750,000 cap.

Who Actually Benefits

To benefit from the mortgage interest deduction, total itemized deductions must exceed the standard deduction. For most borrowers, especially those with loans below $500,000 in lower-tax states, the standard deduction is higher. High-loan-balance borrowers in high-tax states are most likely to benefit. A borrower with a $900,000 loan in a state with significant income and property taxes can generate enough itemized deductions to clear the standard deduction.

• ✦First and second homes both qualify for the deduction; the $750,000 cap is combined across both
• ✦Home equity debt interest is not deductible unless proceeds are used for home improvement
• ✦The deduction is limited to actual interest paid; you must itemize to claim it