Mortgage Interest Deduction Limits After TCJA

The mortgage interest deduction allows homeowners to deduct interest paid on a home loan from their federal income tax, but the Tax Cuts and Jobs Act of 2017 capped this benefit at interest on $750,000 of principal—down from the prior $1 million limit. The change applies to mortgages taken out after December 15, 2017, and significantly reduced the tax advantage for buyers in high-cost real estate markets and those carrying large balances.

The 2017 Tax Law Change

The Tax Cuts and Jobs Act reduced the mortgage interest deduction cap from $1 million to $750,000 in loan principal. This rule applies to mortgages signed after December 15, 2017. For mortgages taken out before that date, the $1 million limit still applies—a grandfathering provision that protects existing borrowers.

The change came alongside a near-doubling of the standard deduction, which meant fewer homeowners found it worthwhile to itemize deductions at all. Before 2017, a homeowner in a high-tax state with significant mortgage interest and property taxes could often exceed the standard deduction threshold. After 2017, that became harder, and many middle-class homeowners switched to the standard deduction, forfeiting the mortgage interest deduction entirely.

How the Deduction Actually Works

A homeowner who itemizes deductions can deduct the interest portion of mortgage payments made during the tax year. Because early mortgage payments are mostly interest, this deduction is largest in the early years of a loan and shrinks as principal paydown accelerates.

Example: A borrower with a $500,000 mortgage at 5% pays roughly $25,000 in interest the first year. If they itemize, they can deduct that $25,000 from taxable income. At a 24% marginal tax rate, that saves $6,000 in tax.

The $750,000 cap means only interest on the first $750,000 of principal qualifies. A buyer with an $800,000 mortgage can deduct interest only on $750,000 of it; interest on the excess $50,000 is nondeductible.

Who Benefits, and Who Doesn’t

High-income buyers in expensive real estate markets felt the change most acutely. In San Francisco, New York, Boston, and Los Angeles, where median home prices exceed $1 million, many buyers now exceed the deduction cap and lose the tax benefit on portion of their interest.

However, most middle-income homeowners saw little impact. A buyer with a $300,000 mortgage in a typical market was well below the $750,000 cap and saw no direct change to the deduction. Many of these borrowers also found that the near-doubled standard deduction made itemizing no longer worthwhile overall, even though they remained below the cap.

High-income earners in lower-cost areas benefited from the cap increase relative to prior law, while high-income buyers in expensive markets lost out. The law thus created geographic winners and losers.

Home Equity Line of Credit Limitation

Before 2017, homeowners could deduct interest on both a primary mortgage and a home equity line of credit (HELOC) or home equity loan, up to $1 million combined. The Tax Cuts and Jobs Act eliminated the deduction for HELOC interest entirely—with one exception: if the borrowed funds are used to buy, build, or substantially improve the home, the interest remains deductible (subject to the $750,000 principal cap).

This change removed a common planning tool. Homeowners who had built equity and wanted to tap it for other purposes—paying off credit cards, funding education, or general spending—could no longer deduct the interest, making the HELOC less attractive on tax grounds.

State and Local Tax Cap Interaction

The TCJA also capped the deduction for state and local taxes (SALT) at $10,000 per year. Many high-income homeowners in expensive states found themselves unable to deduct all property taxes and income taxes, let alone also itemize for mortgage interest. Some opted to pay off mortgages early to free up money for tax-deductible charitable giving instead.

The SALT cap is set to expire after 2025, potentially restoring some incentive to itemize for high-income borrowers in high-tax states.

Itemizing vs. Standard Deduction

To claim the mortgage interest deduction, a homeowner must itemize rather than take the standard deduction. In 2024, the standard deduction was roughly $13,850 for single filers and $27,700 for married couples filing jointly. To justify itemizing, a homeowner’s combined mortgage interest, property taxes, charitable contributions, and other eligible expenses must exceed this threshold.

For most homeowners below the $750,000 cap, especially those in moderate-cost markets, the standard deduction now exceeds itemized deductions, and the mortgage interest deduction provides no actual tax benefit. They simply take the standard deduction and ignore the interest deduction.

Conversely, a wealthy buyer in a high-tax state who is paying property tax and has mortgage interest that combines to exceed the standard deduction still benefits—but only on the first $750,000 of mortgage principal.

The Sunset Question

The cap on mortgage interest deductions is permanent under current law; it does not expire. However, various provisions of the TCJA are scheduled to sunset after 2025, and Congress could theoretically raise or eliminate the cap in future legislation. For now, borrowers and tax planners should assume the $750,000 limit is fixed.

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