Mortgage Interest Deduction in 2026: Will It Help New-Home Buyers?

The mortgage interest deduction lets you subtract the interest you pay on up to $750,000 of home loan debt ($375,000 if married filing separately) from your taxable income. But it only helps if you itemize deductions, and in 2026 the IRS standard deduction is $32,200 for married couples filing jointly and $16,100 for single filers. Many buyers will be better off taking the standard deduction.

There is also news for 2026. The IRS says the deduction for mortgage insurance, including PMI and FHA premiums, is back for the 2026 tax year.

How does the mortgage interest deduction work?

The IRS explains it in Publication 936. ""You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness."" Older loans taken out before December 16, 2017 can use a higher limit of $1 million ($500,000 if married filing separately).

To claim it, IRS Publication 936 says you must ""file Form 1040 or 1040-SR and itemize deductions on Schedule A (Form 1040).""

The deduction covers a loan on your main home or a second home. IRS Topic 505 says ""Qualified mortgage interest includes interest and points you pay on a loan secured by your main home or a second home.""

Your lender reports the interest to you on Form 1098. The IRS instructions say the form is used ""to report mortgage interest (including points, defined later) of $600 or more.""

What changed in 2026 under the One Big Beautiful Bill Act?

The IRS says the law known as the One Big Beautiful Bill Act was enacted on July 4, 2025 (Public Law 119-21). Two parts matter most to buyers.

The $750,000 limit stays. Before this law, the lower limit was set to end after 2025. A Congressional Research Service report on the law says it ""makes the lower mortgage debt thresholds for new loans incurred after December 15, 2017, permanent."" The tax code section, 26 U.S.C. 163(h)(3)(F), now has no end date for the $750,000 limit.

Mortgage insurance is deductible again. The IRS's draft 2026 Publication 936 (dated September 30, 2026) says: ""The itemized deduction for qualified mortgage insurance premiums has been reinstated for tax year 2026."" It covers insurance ""provided by the VA, the Federal Housing Administration, or the Rural Housing Service (RHS), and private mortgage insurance.""

There is an income limit. The same draft says the deduction starts to shrink when adjusted gross income (AGI) is over $100,000 ($50,000 married filing separately). It is gone completely above $109,000 ($54,500 married filing separately). The insurance contract must also have been issued after 2006.

Not sure what PMI is? Our guide to PMI explains it. Our post on FHA vs conventional loans shows how FHA mortgage insurance differs.

Is itemizing worth it, or is the standard deduction better?

This is the question that decides everything. The IRS says that ""In most cases,"" your tax is lower if you ""take the larger of your itemized deductions or your standard deduction.""

The IRS standard deduction amounts are:

Here is an EXAMPLE only. It is not a rate quote or tax advice.

In this example, the married couple would come out ahead with the standard deduction, unless they had other itemized deductions such as charity gifts. The single buyer would itemize. Your numbers will be different, so run them with a tax professional.

Property taxes count toward itemizing too, within a cap. IRS Publication 505 says the state and local tax limit ""For 2026"" is ""$40,400 ($20,200 if married filing separately)."" It is reduced when modified AGI is over $505,000 ($252,500 married filing separately), but ""will not be reduced below $10,000 ($5,000 if married filing separately).""

Can I deduct points, including points a builder pays?

Points are fees you pay to lower your interest rate. Our guide on how to buy down your interest rate explains the math.

IRS Topic 504 says ""You can deduct the points to obtain a mortgage on your principal residence, in the year you pay them,"" as long as you meet the IRS tests. These include that the loan is to buy or build your main home, paying points is normal where you live, and the points are clearly shown on your settlement statement.

Here is the part new-home buyers miss. When the seller pays points on your loan, IRS Topic 504 says that amount ""is treated as paid directly by you from unborrowed funds, provided you subtract the amount of the seller-paid points from your basis (purchase price) in your home.""

On a new home, the builder is the seller. So points a builder pays on your loan can be treated as yours for this deduction, if you itemize and meet the tests. Your home's basis goes down by the same amount. Our post on builder mortgage rate buydowns explains how builders pay for lower rates. Call 561-704-0091 for today's builder offers.

What if my home is still being built?

Most buyers of a builder home get their mortgage at closing, after the home is done. But if you have a loan while the home is going up, there is a rule for that.

The IRS draft 2026 Publication 936 says: ""You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy.""

What this means for new-construction buyers

Before you count on a tax break to make a payment work, check three things. First, compare your likely itemized deductions with the 2026 standard deduction. Second, if you will pay PMI or FHA mortgage insurance, look at the income limit for that deduction. Third, if a builder is paying points as an incentive, ask for those points to be clearly shown on your settlement statement, and keep it for your tax preparer. When you work out how much house you can afford, it is safest to leave the tax savings out of the monthly budget.

Common Questions

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Related reading: What is PMI? · How to buy down your interest rate · Builder mortgage rate buydowns

This is general information, not financial, tax or legal advice. Figures checked October 14, 2026.