Home Mortgage Interest Deduction: A High Earners CPA Guide

The mortgage interest deduction can still save high earners thousands of dollars in federal taxes, but the amount you can claim depends on more than your mortgage balance.

The $750,000 debt limit, the rules for HELOCs and second homes, and the new 2/37 limitation on itemized deductions from 2026 all affect how much interest you can deduct.

This guide explains how the rules work, where high-income taxpayers often lose deductions, and what to review before buying a home, refinancing, or filing your next tax return.

How the Mortgage Interest Deduction Works When Your Income Is High

The Mortgage Interest Is an Itemized Deduction and Most High Earners Itemize Anyway

Mortgage interest only counts if you itemize on Schedule A instead of taking the standard deduction. For 2026 the standard deduction is $32,200 for married couples filing jointly and $16,100 for single filers. (irs.gov)

The Tax Cuts and Jobs Act roughly doubled the standard deduction starting in 2018, and the OBBBA made that increase permanent. Itemizing collapsed as a result. Taxpayers itemized on 30.6% of all returns for 2017 and on only 9.5% for 2022. (irs.gov)(irs.gov)

High earners are the exception. In Congressional Research Service data for tax year 2023, 52% of returns with adjusted gross income between $500,000 and $1 million itemized, and 66% between $1 million and $5 million did, against 21% between $100,000 and $500,000. (congress.gov)

Those figures still reflect the old $10,000 cap on state and local taxes. The OBBBA raised the cap to $40,400 for 2026, but it phases back down to $10,000 as income climbs past $505,000, so most households in those top bands get little from the increase. It will push some filers into itemizing, but far fewer than the headlines suggest.

So the first question is not the size of the Form 1098 your lender sent. It is whether your itemized deductions still beat your standard deduction after every limit applies.

What the IRS Actually Counts to Qualify

Four things have to line up:

• You own the home, legally or equitably
• The debt is yours in substance, even if your name isn’t on the loan
• You itemize
• The debt is secured by a qualified home and was used to buy, build, or substantially improve it

Above the dollar limits, the deduction shrinks in proportion to the excess balance.

Treas. Reg. 1.163-1(b) allows a deduction for interest “on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage.”(law.cornell.edu)

Equitable ownership means you carry the burdens of owning the home and get its benefits, whatever the paperwork says. Njenge v. Commissioner (2008) shows how that plays out. Ndile Njenge and Ekinde Rachel couldn’t get a mortgage after a bankruptcy, so their son bought the house and took out the loan in his own name. The parents lived there, paid the upkeep and the property taxes, and made the mortgage payments. The payments came out of a company bank account, but the company had never gotten off the ground, and the court found the account worked as their personal account, so the payments counted as theirs. The IRS denied their 2003 deduction because the title and the loan were the son’s. The Tax Court sided with the parents as the equitable and beneficial owners. (dawson.ustaxcourt.gov)

Njenge is a summary opinion, so no other taxpayer can cite it as precedent. It still shows what the court looks at. If a family member holds the title or the loan for you, keep records proving the mortgage, taxes, and upkeep come out of your money.

The $750,000 Debt Limit: A High Earners Trap to Be Aware Of

It’s $750,000 of acquisition debt, or $375,000 if you’re married filing separately, combined across your main home and one second home. Acquisition debt is debt incurred to buy, build, or substantially improve a qualified home and secured by that home. (irs.gov)

The Cap Applies to Your Loan Balance and Not to the Interest You Pay

Interest on a balance above the limit is prorated, not lost. The worksheet in IRS Publication 936 divides your debt limit by the combined average balance of all the mortgages on your main and second home, then multiplies the interest you paid by that fraction. (irs.gov) So a loan you pay down during the year counts at its average balance for the year.

A late refinance, a principal paydown, or a second loan added during the year can change the deductible share.

What Counts Toward the $750,000 Debt Limit

• Main home: a construction loan counts while the home is being built, for up to 24 months
• Second home: a loan on one other residence you choose for the year shares the same $750,000, not a second limit
• Home improvements: a loan counts only when it paid to substantially improve the same home that secures it

Quick Example: How Much Interest Can You Deduct on a $1.2 Million Jumbo Mortgage?

The example assumes:

• You’re married filing jointly, and you took out the loan in 2024 to buy your main home
• The average balance for the year was $1,200,000, with no other mortgage on a main or second home
• You paid $72,000 of interest during the year

Your limit is $750,000, which is 62.5% of the $1,200,000 average balance. So 62.5% of the interest is deductible, or $45,000. The other $27,000 gets no deduction, even though the full $72,000 shows up on your Form 1098.

Loan Taken Before December 16, 2017: Grandfathered Debt Limits

Debt incurred on or before December 15, 2017 keeps the old limit of $1,000,000, or $500,000 if married filing separately. (law.cornell.edu)

What about a home you were already buying when the $750,000 limit replaced the $1,000,000 limit? It gets the higher limit if all three are true:

• You signed a written binding contract before December 15, 2017
• The contract was to close on the purchase of your principal residence before January 1, 2018
• You actually bought the home before April 1, 2018

The two limits don’t stack. The $750,000 limit for newer debt is reduced by the older debt, so a $600,000 balance from 2016 leaves $150,000 of room for a loan taken out in 2026.

Married Filing Separately and the $375,000 Limit

If you file separately and own more than one home, each of you can count only one of them as a qualified home. The exception is when you both agree in writing that one spouse counts both the main home and the second home. (irs.gov)(law.cornell.edu) Each of you then has a $375,000 limit on the home you chose, or $500,000 for debt from on or before December 15, 2017.

The 2026 Change You Should Know: The 2/37 Rule

What the 2/37 Rule Does to Your Itemized Deductions

The 2/37 rule only reaches households whose income gets into the 37% bracket. For 2026 that starts at $768,700 of taxable income for married couples filing jointly, and the next section lists the other thresholds. If your taxable income stays under that line even with your itemized deductions added back, or you take the standard deduction, it doesn’t touch you.

Once your taxable income is fully inside the 37% bracket, the rule trims your itemized deductions so each dollar saves 35 cents of federal tax instead of 37. The reduction equals 2/37 of whichever is smaller: your total itemized deductions, or the amount by which your taxable income, with those deductions added back, tops the threshold.

The rule runs last, after the state and local tax cap and every other limit, and it does not change how much interest the Pub. 936 worksheet allows. (law.cornell.edu) It doesn’t single out mortgage interest either. Charitable contributions and state and local taxes shrink right along with it.

The 2/37 rule replaced something much harsher. The old Pease limitation cut most itemized deductions by 3% of adjusted gross income over a far lower threshold, $313,800 for married couples filing jointly in 2017, and could take as much as 80% of them. (irs.gov) The Tax Cuts and Jobs Act suspended Pease from 2018 through 2025. It was due back in 2026 until the OBBBA rewrote the law and put the 2/37 rule in its place. (govinfo.gov)

Who Is Affected in 2026 and Who Is Not

The 2026 thresholds are $768,700 for married filing jointly, $640,600 for single and head of household filers, and $384,350 for married filing separately. (irs.gov)

What happens depends on your taxable income before itemized deductions and your itemized deductions:

• If your taxable income before itemized deductions is at or below the threshold, nothing happens
• If your taxable income is below the threshold but your taxable income before itemized deductions is above it, the cut is 2/37 of the amount over. Adding another deduction doesn’t make the cut bigger
• If taxable income is at or above the 37% threshold, the cut is 2/37 of all your itemized deductions

And if you take the standard deduction, the 2/37 rule doesn’t touch you at all.

The test uses taxable income before itemized deductions, not adjusted gross income.

A Quick Example: A Married Couple With $100,000 of Itemized Deductions

Take a married couple filing jointly with $1,000,000 of taxable income and $100,000 of itemized deductions: the $45,000 of mortgage interest from the $1.2 million example above, $10,000 of state and local taxes, and $45,000 of charitable contributions that count after their own limits.

Their taxable income before itemized deductions is $1,100,000, which is $331,300 above the $768,700 threshold. The lesser of $100,000 and $331,300 is $100,000, so the cut is 2/37 of $100,000, or $5,405. They deduct $94,595. The $5,405 cut costs them about $2,000 in federal tax at 37%. (congress.gov)

How It Stacks With the SALT Cap and the SALT Phase-Down Above $505,000 of Income

State and local tax, or SALT, is capped at $10,000, or $5,000 if married filing separately, for anyone the 2/37 rule touches. For 2026 the SALT cap is $40,400. It shrinks by 30% of your modified adjusted gross income above $505,000. For this cap, modified adjusted gross income is your adjusted gross income plus any foreign earned income or Puerto Rico or U.S. possession income you excluded, so for most people it’s simply their adjusted gross income. The cap can’t drop below $10,000, a floor it reaches at about $606,333. (law.cornell.edu) The cap edges up each year through 2029 and falls to $10,000 in 2030.

The 2/37 rule only reduces anything once taxable income before itemized deductions passes the threshold. Outside married filing separately, the lowest threshold is $640,600, which is already past the $606,333 point where the SALT cap hits $10,000. So by the time the 2/37 rule applies, the SALT cap is already down to its floor.

Business owners have one more lever. A pass-through entity tax election lets an S-Corp or partnership pay the state income tax on its own return, and that deduction sits outside the individual cap. (irs.gov)

Second Homes, Vacation Homes and Rentals: What Still Qualifies for Mortgage Deductions

How the Cap Is Shared If You Have One Main Home and One Second Home

You can switch which home counts as your second home partway through a year only if you buy a new home, your main home stops being your main home, your second home is sold, or it becomes your main home. (irs.gov) Own a beach house and a ski condo? Only one of them can be the qualified second home in a given year, inside the same $750,000 limit as your main home.

If You Rent Out the Second Home: The 14-Day Rule and Personal-Use Test Apply

A second home you never rent qualifies with no day count at all. (law.cornell.edu) Rent it out at any point in the year, and two separate rules come into play:

• The personal-use test. To stay a second home, the property has to be used for personal purposes for more than the greater of 14 days or 10 percent of the days it’s rented at a fair rental. Days your family uses it count as personal use. Fail the test and the property is rental property, not a second home. (irs.gov) Our guide to short-term rental losses covers how rental property is taxed.
• The rule for short rentals. If a home you use as a residence is rented for fewer than 15 days in the year, the rent isn’t taxable, you take no rental deductions, and the mortgage interest stays on Schedule A.

(law.cornell.edu)

The short-rental rule is the one behind the Augusta rule, which lets you rent out your home for fewer than 15 days in a year with no rental income to report.

Can a Boat or RV Count as Your Second Home?

A boat or RV can qualify as your second home inside the same $750,000 limit when all of these are true:

• It has sleeping, cooking, and toilet facilities
• You use it as a home
• It’s the one second home you picked for the year
• The loan is secured by the boat or RV itself

(irs.gov)

Because the loan isn’t secured by real estate, the lender doesn’t have to send you a Form 1098, so you may need your loan statements to find the interest you paid. (irs.gov)

There’s also an alternative minimum tax catch, which the AMT section below explains. The AMT only allows interest on a second home that is a house, apartment, condominium, or mobile home, so the interest on a boat or RV gets added back. If the AMT applies to you, you lose that deduction. (irs.gov)

HELOCs, Cash-Out Refinances and the “Use of Proceeds” … What Can You Really Deduct?

The label on a loan decides nothing. What decides it is the use of proceeds, meaning what the borrowed money actually paid for.

HELOC Interest: Deductible for a New Kitchen, Not for Tuition or Investments

What matters is which home secures the loan. A mortgage on a vacation home is deductible because the loan that bought it is secured by the vacation home itself. Use a home equity line of credit, or HELOC, on your main home to buy that same vacation home, and the interest isn’t deductible: the line is secured by your main home, and the money didn’t buy, build, or improve your main home. The IRS uses this exact pair of examples. (irs.gov) Redo the kitchen of the home that secures the line, and the interest counts within the $750,000 limit.

Spending the line on tuition, a car, or credit card debt gets no mortgage interest deduction, even on a line you opened before 2018. Money traced to investments isn’t mortgage interest at all. That interest is treated as investment interest.

Refinancing a Large Mortgage: What Stays Deductible and What Does Not

A refinance doesn’t reset your deduction. The new loan counts as acquisition debt for no more than the balance being refinanced, meaning what you still owed on the old loan right before the refinance. (irs.gov)

Say you owe $600,000 and refinance into a $700,000 loan, taking $100,000 out in cash. The $600,000 that paid off the old loan keeps its status. The $100,000 counts only if you spend it to buy, build, or substantially improve the home. Spend it on a car or tuition, and the interest on that $100,000 isn’t deductible.

If the old loan was taken out on or before December 15, 2017, the refinanced $600,000 also keeps the old $1,000,000 limit, but only for as long as the original loan would have run. For an interest-only loan, that window ends when the first refinanced loan’s term ends, and no later than 30 years after that refinance. Any new cash you put into the home is new debt, so it falls under the $750,000 limit. (law.cornell.edu)

Why You Need Records of How the Money Was Spent Regardless

Interest is allocated by tracing each disbursement to what it paid for. (irs.gov) If a line of credit paid for a renovation and a car, only the renovation’s share of the interest is deductible, and your Form 1098 won’t split it for you. Keep the draw statements, the contractor invoices, and the closing statement on every refinance for as long as the loan is open.

Deduction of Points, Mortgage Insurance and Other Closing Costs: What You Can Do

Mortgage Points: Deduct Now or Spread Over the Life of the Loan?

Points are interest you pay upfront at closing to lower your rate. You can deduct them in the year you pay them on a loan secured by your main home that buys, builds, or substantially improves it, if the Pub. 936 tests are met. Two of those tests are that paying points is an established practice in your area and that your own cash at closing covers at least the points. Even when every test is met, you can choose to spread them over the loan instead. (irs.gov)

Points on a refinance are amortized, meaning deducted a slice at a time over the life of the loan. The exception is the share tied to money used to substantially improve your main home, which you can deduct in the year paid if the Pub. 936 tests are met. Second-home points are amortized too. Pay the loan off early, or refinance with a different lender, and whatever is left is deductible that year.

Mortgage Insurance Premiums Are Deductible Again in 2026

Mortgage insurance premiums are gone as a deduction once adjusted gross income passes $109,000, or $54,500 if married filing separately, even though they count as mortgage interest again starting in 2026. The deduction drops 10% for each $1,000 of adjusted gross income above $100,000, or for each $500 above $50,000 if married filing separately, for FHA, VA, Rural Housing Service, and private insurance under contracts issued after 2006. (irs.gov)(law.cornell.edu)

Best Planning Moves for High Earners to Maximize Mortgage Deductions

Coordinate Mortgage Interest With Charitable Giving and Property Taxes

Starting in 2026, charitable contributions count only above 0.5% of your contribution base, which is your adjusted gross income figured without any net operating loss carryback. (law.cornell.edu) The 2/37 cut then applies to the total that’s left. Because the floor comes off each year’s contributions, grouping two years of charitable contributions into one year takes the floor once instead of twice.

Property taxes sit inside the same SALT cap as your state income tax. So prepaying them does nothing for a couple already at the $10,000 floor.

Paying Down the Mortgage vs Investing: Compare What Interest Costs You After Tax

Start with the share of your interest that’s actually deductible. On the $1.2 million example, $27,000 of the $72,000 gets no deduction, so that slice costs you its full rate.

Our piece on paying off a mortgage early runs the comparison. Most people are poor voluntary savers, which is our standing advice to clients, so a payment that happens automatically has value of its own. Whether you would invest the freed-up cash or spend it matters as much as the after-tax rate.

Alternative Minimum Tax (AMT): Does It Erase the Benefit?

The alternative minimum tax is a parallel tax calculation that runs alongside the regular one. Does it erase the mortgage deduction? No. The AMT allows qualified housing interest, which is interest on debt used to buy, build, or substantially improve your main home or a second house, apartment, or condominium. (law.cornell.edu)

The AMT adds back state and local tax. For a couple already limited to $10,000 of SALT, the add-back is that $10,000.

Home Office and Business Use: You Cannot Claim the Same Interest Twice

If you deduct your actual home office costs rather than using the flat-rate simplified method, you can recover part of the interest the $750,000 limit cuts off: the business share of that excess goes on the home office worksheet instead. (irs.gov) And the business share of the interest you already deduct moves off Schedule A and onto Form 8829 and Schedule C, so the same dollar is never claimed twice. Use the simplified method and all of the interest stays on Schedule A.

If you’re an S-Corp owner, the company can reimburse you for the home office through an accountable plan, an arrangement with three conditions: a business connection, records handed in within a reasonable time, and any excess returned. Our piece on the hidden cost of the home office deduction covers when that’s worth doing. (law.cornell.edu)

Common Mortgage Deduction Mistakes That Cost High Earners Real Money

Deducting the Full Interest on a Loan Above the Cap

The limit runs on the combined average balance of every mortgage on your main and second home. So a $500,000 average balance on each of two homes is over the $750,000 limit combined, even though neither loan is over it alone.

Assuming Unmarried Co-Owners Share One $750,000 Limit

Unmarried co-owners don’t share one limit. Each gets their own. In Voss v. Commissioner (9th Cir. 2015), Charles Voss and Bruce Sophy were registered domestic partners, not married. They co-owned homes in Beverly Hills and Rancho Mirage with about $2.7 million of mortgage debt. The IRS said the two of them shared a single $1.1 million limit, the cap at the time. The Ninth Circuit disagreed and gave each of them $1.1 million. The IRS later announced it would follow that holding. (cdn.ca9.uscourts.gov)(irs.gov)

Today’s limit is $750,000, and the IRS hasn’t said how Voss applies to it. The logical reading is $750,000 for each unmarried co-owner, but that isn’t settled. To claim your share, you have to own the home, legally or equitably, and pay the interest you deduct. Your name doesn’t have to be on the loan.

Ignoring a Form 1098 That Does Not Match Your Records

A lender only has to file a Form 1098 when it receives $600 or more of interest on a mortgage. (irs.gov) If the lender sent the Form 1098 to a co-borrower instead of you, you deduct your own share on line 8b of Schedule A and attach a statement explaining why. (irs.gov)

The same applies if the lender sent the form to a relative whose name is on the loan: if you are the equitable owner making the payments, the deduction can still be yours.

Using a HELOC for Non-Home Purposes and Deducting the Interest Anyway

Your lender reports all the interest you paid on a HELOC in box 1 of your Form 1098, no matter what you spent the money on. The lender doesn’t track that, and the form doesn’t ask. If part of the line paid for tuition or a car and you copy box 1 straight onto Schedule A, you’ve deducted interest you aren’t entitled to. Only the interest on the part you spent to buy, build, or substantially improve the home counts, so work out that share from your draw records before you enter it.

Forgetting to Rerun the Numbers After the 2/37 Rule

A projection built on 2025 rules overstates what your 2026 deductions are worth once taxable income before itemized deductions passes the 37% threshold. Rerun the comparison of itemizing against taking the standard deduction as well. The $32,200 standard deduction for married couples doesn’t shrink under the 2/37 rule, and your itemized deductions do.

Pre-Filing and Pre-Purchase Checklist

Before you file, or before you sign for a new loan:

• Compare every Form 1098 with your own payment records
• Note the average balance and start date of every mortgage on your main and second home
• Run the Pub. 936 worksheet if the combined average balance is over your limit
• Trace every HELOC or cash-out draw to what it paid for
• Compare itemized deductions after the limits with your standard deduction, $32,200 for married couples filing jointly or $16,100 for single filers
• Check taxable income before itemized deductions against your 37% threshold
• Count personal-use and fair-rental days on any second home you rent out
• Before buying, decide which home is the second home and how much room the loan leaves
• Before refinancing, compare the new principal with the old balance

Conclusion: The Mortgage Deduction Is Still Valuable, but It Needs a Plan

The OBBBA made the $750,000 limit permanent, so the deduction itself didn’t change. What changed are the rules around it. For a high earner, the biggest is the 2/37 rule, which trims every itemized deduction once your income reaches the 37% bracket. Mortgage insurance premiums count as mortgage interest again starting in 2026, but that deduction phases out completely above $109,000 of adjusted gross income, so it rarely helps a high earner. And the higher state and local tax cap phases back down to $10,000 by about $606,000 of income, so it adds little for most readers of this article.

Three things can change your answer from one year to the next: your balance dropping below $750,000, your taxable income before itemized deductions crossing $768,700, or a HELOC draw spent on something other than the home.

The rules, side by side:

FAQ: Mortgage Interest Deduction for High Earners

Is Mortgage Interest Still Deductible If I Make Over $500,000?

Yes. Income doesn’t phase out the mortgage interest deduction itself, but from 2026 the 2/37 rule cuts total itemized deductions once taxable income before itemized deductions passes $768,700 for married couples filing jointly or $640,600 for single filers.

How Much Mortgage Interest Can I Deduct on a $1 Million Mortgage?

On debt taken out after December 15, 2017, a married couple filing jointly deducts the fraction of the interest equal to $750,000 divided by the average balance, which is 75% of the interest on a $1,000,000 balance if it’s your only mortgage. Debt incurred on or before that date keeps the $1,000,000 limit, so if it’s your only mortgage, all of the interest on a $1,000,000 balance counts.

Can I Deduct Interest on a Second Home or Vacation Home?

Yes, on one second home at a time, within the same $750,000 limit as your main home. If you rent it out, you have to use it personally for more than the greater of 14 days or 10% of the days it’s rented at a fair rental.

Is HELOC Interest Tax Deductible in 2026?

HELOC interest is deductible only when the money was used to buy, build, or substantially improve the home that secures the line. If your total mortgage debt is over $750,000, you deduct the prorated share.

What Is the 2/37 Rule and Does It Affect My Mortgage Interest Deduction?

Starting in 2026, it trims your itemized deductions once your taxable income before itemized deductions passes the 37% bracket threshold. The cut is 2/37 of your itemized deductions or 2/37 of your income over the threshold, whichever is smaller. Mortgage interest shrinks along with everything else.

Are Mortgage Insurance Premiums Deductible Now?

Mortgage insurance premiums count as mortgage interest again for 2026, but the deduction starts phasing out at $100,000 of adjusted gross income and is gone above $109,000. If you are married filing separately, it starts phasing out at $50,000 and is gone above $54,500.

Want help working out how much of your mortgage interest still counts for 2026? Reach out.