Your 1098 and the mortgage interest deduction

Your lender sends a 1098 after the year ends showing what you paid on the mortgage. Whether any of it lowers your tax depends on a question the form does not ask: whether your itemized deductions add up to more than your standard deduction.

The boxes that matter

• Box 1, mortgage interest received. The deductible item, subject to the limits below. It is interest only, not principal, so it will look small next to what you actually sent the servicer.
• Box 2, outstanding principal. The balance at the start of the year. It is what a preparer uses to test the debt limit.
• Box 3, origination date. This decides which limit applies to the loan.
• Box 4, refund of overpaid interest. A reduction, not a deduction.
• Box 5, mortgage insurance premiums. Some servicers still report it. The deduction for mortgage insurance premiums does not apply for 2025, so the amount in box 5 does not go on Schedule A for this year.
• Box 6, points paid on purchase of a principal residence. See below.
• Box 10, other. Often the property tax the servicer paid out of your escrow account. Property tax is deductible, but on a different Schedule A line and under a different cap.

It only counts if you itemize

Mortgage interest is an itemized deduction. You take either the standard deduction or the sum of your itemized deductions, never both.

That means the useful comparison is not "how much interest did I pay" but "does interest plus state and local taxes plus charitable gifts plus qualifying medical expenses beat the standard deduction". For a married couple filing jointly, the number to beat for 2025 is $31,500. Many homeowners several years into a loan, when the interest portion of each payment has shrunk, no longer clear it.

Run the comparison anyway rather than assuming either way. Your preparer can total both in a few minutes, and the answer can flip in a year with a new loan, a big charitable gift, or heavy medical bills.

The debt limit

Interest is fully deductible on home acquisition debt up to $750,000, or $375,000 if you file married filing separately. Home acquisition debt means the loan was used to buy, build or substantially improve the home that secures it.

Loans taken out on or before December 15, 2017 fall under the older, higher limit, which is why box 3 matters. Above the limit, the interest is not lost entirely; it is prorated, and the deductible share is the limit divided by the average balance. That worksheet lives in Publication 936, and it is the part most worth handing to a preparer rather than estimating.

The purpose test does real work here. A home equity loan or a cash-out refinance produces deductible interest only to the extent the money went into the home. Proceeds used to pay off a car, consolidate credit cards or cover tuition do not qualify, even though the loan is secured by the house and the interest shows up in box 1 along with everything else.

The deduction also covers a second home you do not rent out, but the limit applies across both homes together, not to each one.

Property tax, box 10, and the SALT cap

Property tax from box 10 goes on Schedule A with your state and local income or sales taxes, and the total of all of them is capped at $40,000 for 2025. That cap phases down at higher incomes and does not fall below a floor set in the same worksheet.

So a household with high property tax and high state income tax may find that the last of its property tax produces no deduction at all. It also means the taxable-or-not question about a state tax refund next year depends on how much of this year's tax actually cleared the cap.

Points, and refinancing

Points are prepaid interest. Points paid to buy or build your main home can generally be deducted in the year you paid them if a list of conditions is met, and that is what box 6 is reporting.

Points on a refinance are treated differently. They are spread over the life of the new loan, a slice each year. If you refinance again and pay off that loan, the remaining unamortized points from the earlier refinance generally become deductible at that point. That carryover is easy to lose track of across two or three refinances, so keep the closing statements with your tax records.

If you sold or refinanced mid-year you may receive two 1098s for the same property. Both belong on the return, and both count toward the same limits.