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Home Mortgage Interest — Special Situations: Home Mortgage Interest Deductions (2025 IRS Guide)

This guide covers “Home Mortgage Interest — Special Situations” within home mortgage interest deductions. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 936 (2025), Home Mortgage Interest Deduction, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

This part explains what you can deduct as home mortgage interest. It includes discussions on points and how to report deductible interest on your tax return.

Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, or a second mortgage.

You can’t deduct home mortgage interest unless the following conditions are met.

  • You file Form 1040 or 1040-SR and itemize deductions on Schedule A (Form 1040).

  • The mortgage is a secured debt on a qualified home in which you have an ownership interest. Secured Debt and Qualified Home are explained later.

Home Mortgage Interest — Special Situations

This section describes certain items that can be included as home mortgage interest and others that can't. It also describes certain special situations that may affect your deduction.

Late payment charge on mortgage payment.

You can deduct as home mortgage interest a late payment charge if it wasn't for a specific service performed in connection with your mortgage loan.

Mortgage prepayment penalty.

If you pay off your home mortgage early, you may have to pay a penalty. You can deduct that penalty as home mortgage interest provided the penalty isn't for a specific service performed or cost incurred in connection with your mortgage loan.

Sale of home.

If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of the sale.

Example.

Sasha and Harper Smith sold their home on May 7. Through April 30, they made home mortgage interest payments of $1,220. The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. Their mortgage interest deduction is $1,270 ($1,220 + $50).

Prepaid interest.

If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. You can deduct in each year only the interest that qualifies as home mortgage interest for that year. However, there is an exception that applies to points, discussed later.

Mortgage interest credit.

You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. Figure the credit on Form 8396, Mortgage Interest Credit. If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit.

See Form 8396 and Pub. 530 for more information on the mortgage interest credit.

Ministers' and military housing allowance.

If you're a minister or a member of the uniformed services and receive a housing allowance that isn't taxable, you can still deduct your home mortgage interest. For more information, see Pub. 3 (military) or Pub. 517 (ministers).

Mortgage assistance payments under section 235 of the National Housing Act.

If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. You can't deduct the interest that is paid for you.

No other effect on taxes.

Don’t include these mortgage assistance payments in your income. Also, don't use these payments to reduce other deductions, such as real estate taxes.

Homeowner Assistance Fund.

The Homeowner Assistance Fund program (HAF) was established to provide financial assistance to eligible homeowners for purposes of paying certain expenses related to their principal residence to prevent mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services, and also displacements of homeowners experiencing financial hardship after January 21, 2020. If you are a homeowner who received assistance under the HAF, the payments from the HAF program are not considered income to you and you cannot take a deduction or credit for expenditures paid from the HAF program.

See sections on State and Local Real Estate Taxes and Home Mortgage Interest, in Pub. 530, to determine whether you meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. For more details about the HAF program, see Homeowner Assistance Fund in Pub. 530. If you received HAF funds from an Indian Tribal Government or an Alaska Native Corporation and wish more details about the HAF program, see FAQs for Payments by Indian Tribal Governments and Alaska Native Corporations to Individuals Under COVID-Relief Legislation.

Divorced or separated individuals.

If a qualified pre-2019 divorce or separation agreement requires you to pay home mortgage interest on a home owned by your spouse or former spouse or by both of you, the payment of interest may be alimony. See the discussion of Payments for jointly owned home under Alimony in Pub. 504, Divorced or Separated Individuals.

Redeemable ground rents.

In some states (such as Maryland), you can buy your home subject to a ground rent. A ground rent is an obligation you assume to pay a fixed amount per year on the property. Under this arrangement, you're leasing (rather than buying) the land on which your home is located.

If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest.

A ground rent is a redeemable ground rent if all of the following are true.

  • Your lease, including renewal periods, is for more than 15 years.

  • You can freely assign the lease.

  • You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specific amount.

  • The lessor's interest in the land is primarily a security interest to protect the rental payments to which they’re entitled.

Payments made to end the lease and to buy the lessor's entire interest in the land aren't deductible as mortgage interest.

Nonredeemable ground rents.

Payments on a nonredeemable ground rent aren't mortgage interest. You can deduct them as rent if they are a business expense or if they are for rental property.

Reverse mortgages.

A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. With a reverse mortgage, you retain title to your home. Depending on the plan, your reverse mortgage becomes due, with interest, when you move, sell your home, reach the end of a pre-selected loan period, or die. Because reverse mortgages are considered loan advances and not income, the amount you receive isn't taxable. Generally, any interest (including original issue discount) accrued on a reverse mortgage is considered interest on home equity debt and isn’t deductible.

Rental payments.

If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. This is true even if the settlement papers call them interest. You can't deduct these payments as home mortgage interest.

Mortgage proceeds invested in tax-exempt securities.

You can't deduct the home mortgage interest on grandfathered debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. “Grandfathered debt” is defined in Part II of this publication.

Refunds of interest.

If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. If you receive a refund of interest you deducted in an earlier year, you must generally include the refund in income in the year you receive it. However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. If you need to include the refund in income, report it on Schedule 1 (Form 1040), line 8z.

If you received a refund of interest you overpaid in an earlier year, you will generally receive a Form 1098, Mortgage Interest Statement, showing the refund in box 4. For information about Form 1098, see Form 1098, Mortgage Interest Statement, below.

For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in Pub. 525, Taxable and Nontaxable Income.

SBA disaster home loans.

Interest paid on disaster home loans from the Small Business Administration (SBA) is deductible as mortgage interest if the requirements discussed earlier under Home Mortgage Interest are met.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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