For loans taken out after 2017, you can deduct interest on up to $750,000 of acquisition debt ($375,000 if married filing separately). Older loans keep the $1 million limit. Above that, the extra interest is not deductible.
The $750,000 Cap for Most New Loans
For mortgages taken out after 2017, the federal mortgage interest deduction is capped at $750,000 of acquisition debt for a married couple filing jointly, or a single filer. That means you can deduct the interest on up to $750,000 of the money you borrowed to buy, build, or substantially improve your home. Interest on any amount above that is not deductible.
If you file married separately, the cap is $375,000 each. The limit applies to the combined debt on your primary residence and a second home, so if you have a $500,000 mortgage on one property and a $300,000 mortgage on another, you are at the cap and cannot deduct interest on any additional acquisition debt.
Older Loans Keep the Higher Limit
If your mortgage was taken out before 2018, the limit is the older, higher $1 million cap. This grandfathering applies to loans that existed before the change, and it also applies to refinancing that does not increase the balance beyond what was owed.
So a homeowner who has carried the same loan since 2016 can still deduct interest on up to $1 million of debt, while a buyer taking a new loan today is limited to $750,000. The distinction matters most for buyers of higher-priced homes in markets like parts of the Philadelphia suburbs.
What Counts Toward the Limit
Only acquisition debt counts toward the limit, which is money borrowed to buy, build, or substantially improve your home. A home equity loan or line of credit also counts if the proceeds were used for a substantial home improvement, but it does not count toward the limit if the money went elsewhere.
Points paid to lower your rate are generally treated as deductible interest, subject to the same overall limit. If you are at the cap and take out additional debt for other purposes, the interest on that extra debt is not deductible.
The Limit Is Not the Same as Affording the Home
Hitting the deduction limit does not mean you cannot buy a more expensive home, it just means part of your interest stops being deductible. For a buyer financing above $750,000, the lost deduction is a real cost of the purchase that should be part of the decision.
In markets like parts of Montgomery, Chester, and Bucks Counties, home prices can push a purchase past the cap. Before you stretch to a loan above the limit, compare the benefit you would have gotten from the deduction against what the extra home costs you in interest and taxes over the years.
How It Interacts with the Standard Deduction
Even within the limit, the deduction only helps if you itemize and your itemized deductions beat the standard deduction. Many homeowners never reach the point where the mortgage interest deduction reduces their tax bill, because the standard deduction is already higher.
For buyers near the $750,000 cap, the interest is large enough that itemizing often makes sense, which is why the cap matters most precisely for those higher-priced purchases. Run your numbers both ways to see where you actually land.
Smarty's Advice
Know the cap before you shop at the top of the market. If you are financing more than $750,000, part of your interest will not be deductible, and that is a real monthly-equivalent cost. It should not scare you off a home you can comfortably afford, but it should be in your budget.
Ask your lender to show you the interest you will pay in the first few years, then run the itemized comparison with a tax professional. For most buyers the cap is a non-issue, but for jumbo buyers in the suburbs it is one of the numbers that decides whether the stretch is worth it.
Call 215-598-6848 or schedule a free consultation, and I will help you run the true cost of a purchase near or above the limit.
Smarty's Advice Expert Insight
John Smart (Smarty) · Smarty Home Solutions / eXp Realty Agent, AI Certified Agent
The $750,000 cap matters most in the higher-priced corners of the Philadelphia market. In parts of Montgomery, Chester, and Bucks Counties, and in some Philadelphia neighborhoods, purchase prices regularly exceed $750,000, which pushes a buyer's mortgage past the deduction limit. A loan above that line is sometimes called a jumbo loan, and part of its interest is simply not deductible.
Let me show the effect with rough numbers. On a $900,000 mortgage at a typical rate, the interest in the first year could be tens of thousands of dollars. Only the interest on the first $750,000 is deductible, so the interest on the remaining $150,000 is not. Over the life of the loan that is a meaningful amount of lost tax benefit, and it should be part of the true cost comparison when you are deciding how much to stretch.
This is not a reason to avoid a home you can afford, but it is a reason to be honest about the math. Compare the after-tax cost of a $750,000 loan against a larger one, and factor in the property taxes and the SALT cap too. In the suburbs, the combination of a jumbo loan and high property taxes can make the real monthly cost of a bigger home higher than the payment alone suggests.
Before you stretch, ask your lender to run the numbers at both loan sizes and show you the interest in the early years. Then take that figure to a tax professional to see how much of it is actually deductible for your situation. Knowing the after-tax cost of the extra borrowing lets you decide whether the larger home is worth the real price.