You can get a tax refund because of your mortgage, but only through deductions, not because the mortgage itself is refundable

A mortgage is not a refundable expense. The IRS does not send you money back because you have a mortgage. However, two things connected to your mortgage — mortgage interest and property taxes — can lower your taxable income, which may result in a larger refund or smaller tax bill when you file.

The refund comes from the total of all your deductions and credits, not from the mortgage alone. If your deductions are large enough, you may owe less tax overall, and if you had too much withheld from your paychecks during the year, you get the difference back as a refund.

Key Takeaways

  • Mortgage interest is deductible only if you itemize deductions on Schedule A, and only on loans up to $750,000 of principal.
  • Property taxes are also deductible if you itemize, but capped at $10,000 per year across all state and local taxes combined.
  • Most homeowners do not itemize because the standard deduction is larger, so they receive no tax benefit from their mortgage.
  • The refund you receive comes from the total of all your deductions and credits, not from the mortgage itself.
  • You must file Form 1040 with Schedule A to claim mortgage interest and property tax deductions.

When mortgage interest creates a tax deduction

The interest you pay on your mortgage loan is deductible, but only if you itemize deductions on your tax return. Itemizing means listing out individual deductions — mortgage interest, property taxes, charitable donations, and others — instead of taking the standard deduction, which is a flat amount the IRS allows everyone.

For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If your itemized deductions add up to more than that, itemizing saves you money. If they do not, the standard deduction is better, and your mortgage interest provides no tax benefit.

The mortgage interest deduction applies only to loans used to buy, build, or improve a home. It covers your primary residence and one other property, such as a vacation home. The loan principal must not exceed $750,000. If you took out a mortgage before December 16, 2017, the limit is $1,000,000.

Property taxes as a second deduction tied to homeownership

Property taxes you pay to your state or local government are also deductible if you itemize. However, they fall under a broader cap: the State and Local Tax (SALT) deduction, which limits all state and local income taxes, sales taxes, and property taxes combined to $10,000 per year.

This means if you pay $8,000 in property taxes and $3,000 in state income tax, you can deduct only $10,000 total, not $11,000. In high-tax states, this cap often means homeowners cannot deduct all their property taxes.

Like mortgage interest, property tax deductions only help if your total itemized deductions exceed the standard deduction. If you take the standard deduction instead, property taxes provide no tax benefit.

How to know whether itemizing will help you

Add up your mortgage interest for the year, your property taxes, charitable donations, medical expenses above 7.5% of your income, and any other deductions you have. If the total is higher than the standard deduction for your filing status, itemizing will lower your taxable income.

Many homeowners with mortgages still do not itemize because the standard deduction is high enough. A single person with a $300,000 mortgage at 6.5% interest pays roughly $19,500 in interest per year, plus perhaps $4,000 in property taxes — a total of $23,500. That exceeds the $14,600 standard deduction, so itemizing would help. But a person with a smaller mortgage or lower property taxes may not reach the standard deduction even with mortgage interest included.

You can estimate this yourself, or a tax preparer can run the numbers for you. The IRS does not calculate it for you; you choose which method to use when you file.

How a deduction becomes a refund

A deduction lowers your taxable income, which lowers the tax you owe. A refund happens when you have paid more tax than you owe through withholding or estimated payments during the year.

For example: suppose your income is $80,000, and you itemize deductions totaling $30,000. Your taxable income becomes $50,000 instead of $80,000. The tax on $50,000 is less than the tax on $80,000. If your employer withheld $12,000 from your paychecks during the year, and your actual tax bill is $8,000, you get a $4,000 refund. The mortgage interest deduction helped lower your bill, but the refund itself comes from overpayment.

If you owed no federal tax at all, you would not get a refund — you would simply owe nothing. A deduction does not create money; it reduces the amount you owe.

What to file to claim mortgage interest and property tax deductions

You must file Form 1040 with Schedule A (Itemized Deductions) to claim mortgage interest and property taxes. Schedule A is where you list each deduction separately.

You will also need Form 1098 (Mortgage Interest Statement), which your lender sends by January 31 each year. It shows the interest you paid during the year. If you did not receive it, contact your lender or download it from their website.

For property taxes, you need your property tax bill or assessment notice from your local government. Keep receipts or statements showing what you paid.

If you use tax software, it will guide you through Schedule A. If you file by paper, you can download the form from IRS.gov. If you use a tax preparer, bring your Form 1098 and property tax documentation with you.

When mortgage interest does not create a deduction

If you take the standard deduction instead of itemizing, your mortgage interest provides no tax benefit. This is true even if you pay significant interest. The standard deduction already accounts for the fact that many people have mortgages; it is simply a larger amount than most people's itemized deductions.

You cannot claim mortgage interest and also take the standard deduction. You must choose one or the other. The IRS will not let you do both.

If your mortgage is paid off, you have no mortgage interest to deduct. You can still deduct property taxes if you itemize, but many people with paid-off homes have lower overall deductions and end up using the standard deduction instead.

Frequently Asked Questions

Does the mortgage principal I pay count as a deduction?

No. Only the interest portion of your payment is deductible. The principal is a return of your own money, not an expense. Your Form 1098 breaks down how much of your payments went to interest versus principal.

Can I deduct mortgage interest if I do not own the home yet?

No. The deduction applies only to loans secured by a home you own. If you are renting or have not closed on a purchase, mortgage interest is not deductible. Once you own the home and have a mortgage on it, you can deduct the interest starting that year.

What if I paid off my mortgage early — do I get a refund?

Paying off a mortgage early does not trigger a refund. It simply means you stop paying interest, so you have no mortgage interest to deduct in future years. You may owe less tax going forward because your deductions will be smaller, but that is not a refund — it is a lower tax bill.

Do I need to itemize to get any tax benefit from owning a home?

Mortgage interest and property taxes require itemizing. However, if you sold a home and made a profit, you may be able to exclude up to $250,000 of that gain from income (or $500,000 if married filing jointly) without itemizing. That is a separate benefit that applies to home sales, not annual deductions.

If I refinanced my mortgage, does that change my deduction?

Refinancing does not change the deduction itself. You still deduct the interest you pay. However, refinancing may change the amount of interest you pay each year, which affects the size of your deduction. Your new lender will send you a Form 1098 showing the interest paid during the year you refinanced.