Can You Carry Forward Unused Mortgage Interest Deductions?
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If you own a home with a mortgage, you probably know about mortgage interest deductions — a tax break that allows you to deduct the interest you pay on your mortgage from your taxable income. While it is one of the more familiar homeowner tax perks, it is also one that confuses many people, especially when it comes to what happens if you cannot use all of it in a given year.
For most taxpayers, mortgage interest cannot be carried forward to future tax years. You either use it in the year you pay it, or you lose it. However, there are exceptions if the mortgage interest relates to a business or rental property.
How the Deduction Works
The IRS allows you to deduct the interest you pay on a loan used to buy, build or improve your main or second home, as long as the loan is secured by that property. You report this on Schedule A when you file your taxes, meaning you must itemize deductions rather than take the standard deduction.
Since the 2017 Tax Cuts and Jobs Act (TCJA), only the first $750,000 of mortgage debt ($375,000 if married filing separately) qualifies for the interest deduction. Mortgages taken out before Dec. 16, 2017, still enjoy the old $1-million cap.
But the TCJA also raised the standard deduction so much that most homeowners now find it larger than their total itemized deductions.
Why You Cannot Usually Carry Mortgage Interest Forward
Unlike some business expenses or capital losses, the mortgage interest deduction does not roll over. You can only claim the interest you actually paid during that tax year and only if you itemize.
For example, if you paid $10,000 in mortgage interest in 2024 but did not itemize because your standard deduction was higher, you cannot save that $10,000 and deduct it in 2025. The deduction disappears because it applies only to the year of payment.
The IRS treats mortgage interest as annual expenses — similar to utilities or insurance — not something that accrues or carries over like investment losses.
Exception: When You Use Your Home for Business
There is, however, one scenario where unused mortgage interest may be carried forward — when your home is used for business purposes.
If you run a business out of your home and claim the business use of home deduction on Schedule C, or if you rent part of your home and report that income on Schedule E, then mortgage interest is partly treated as business or rental expenses.
If your business expenses (including mortgage interest) exceed the income generated by that activity in a given year, you cannot claim the full deduction immediately. Instead, the unused portion can be carried forward and used in a future year when your business earns more income.
Refinancing & Other Special Cases
If you refinance your mortgage, you can still claim the mortgage interest deduction as long as the new loan is used to buy, build or improve your primary or secondary residence. The same $750,000 limit applies to newer loans, and the interest is deductible only if the property secures the loan.
When you pay points as part of a refinance, you cannot deduct them all at once. Instead, you spread the deduction over the life of the loan — for instance, over 30 years for a 30-year mortgage. If you sell the home or refinance again before that term ends, you can deduct any remaining points that year (unless you refinance with the same lender, in which case, the deduction continues to be spread out).
When it Makes Sense to Itemize
The mortgage interest deduction only helps if your total itemized deductions exceed your standard deduction. For many, this is no longer the case. But homeowners in high-tax areas or those with large mortgages may still find itemizing worthwhile.