How to Complete the Mortgage Interest Deduction Worksheet

The mortgage interest deduction worksheet — Table 1 in IRS Publication 936 — is what you use when your total home mortgage debt exceeds the acquisition debt limit and you can’t simply deduct every dollar of interest on your Form 1098. The worksheet does two things: it figures your qualified loan limit, then it applies that limit as a ratio to your total interest paid. The result is the amount you actually deduct on Schedule A. Plan on about 15 minutes once your documents are in front of you.

When You Need to Use the Worksheet

Most homeowners don’t. If your total outstanding mortgage debt on your main home and second home stayed under $750,000 all year (or $375,000 if you file married filing separately) and every dollar borrowed went toward buying, building, or substantially improving the home, you can deduct all the qualified interest reported on your Form 1098 without touching Table 1. For mortgages taken out after December 15, 2017, that $750,000 cap is the number that matters, and the One Big Beautiful Bill Act made it permanent for 2026 and beyond.¹

You need the worksheet if any of these apply:

Your total mortgage balance crossed $750,000 at any point during the year (or $1,000,000 for a mortgage taken out on or before December 15, 2017, which keeps the older, higher limit).¹
You carry both older (pre-December 16, 2017) and newer mortgage debt and need to combine them under one qualified loan limit.
You refinanced and pulled cash out for something other than home improvements.
You have a HELOC and used some or all of it for purposes other than buying, building, or substantially improving the home securing it.

One boundary worth flagging before you start. You can treat only two properties as qualified residences, your main home and one second home. Interest on a mortgage against a third property isn’t deductible as home mortgage interest at all, and no worksheet salvages it.¹

And confirm itemizing is worth it in the first place. The 2026 standard deduction is $32,200 for joint filers and $16,100 for single filers.² If your mortgage interest plus your other itemized deductions doesn’t beat that, the worksheet doesn’t change your return.

What to Gather Before You Start

The worksheet needs specific inputs. Missing one will stall you or, worse, produce the wrong number.

Form 1098 from every lender. Box 1 has the total interest paid during the year; Box 2 has the outstanding principal as of January 1.³
Settlement statements from your original purchase and every refinance. These pin down the origination date (which sets whether the $750,000 or $1,000,000 cap applies), the original principal, and any cash taken out.
Your December mortgage statement, which shows the ending principal balance.
Monthly statements, if you can get them. They let you compute a more precise average balance than the beginning-and-end shortcut.
Documentation of how you used any HELOC or cash-out proceeds. Receipts, contracts, and invoices proving the money went to substantial improvements (adding a room, replacing the roof, a new HVAC system) matter. Routine repairs and painting don’t qualify.⁴

Keep in mind that Form 1098 tells you what you paid, not what you can deduct. The worksheet is where those two numbers separate.

Calculate the Average Balance of Each Mortgage

Table 1 asks for the average balance of each mortgage over the year, not the balance on any single date. Publication 936 gives you three methods, and the choice matters: a lower average balance produces a more favorable ratio and a bigger deduction.¹

First-and-Last Balance

Add the January 1 balance to the December 31 balance and divide by two. Use this only if you didn’t borrow any new amounts on the mortgage during the year, didn’t prepay more than one month of principal, and made level payments at regular intervals. For a straightforward fixed-rate mortgage held all year, this is the easiest option.

Interest Divided by Rate

Divide the year’s total interest paid by the annual interest rate. Paying $18,000 in interest on a loan at 6% gives an average balance of $300,000. The loan has to be secured by a qualified home for the full year, and you have to pay interest at least monthly. For an adjustable-rate mortgage, you use the lowest rate for the year, which pushes the calculated balance higher, so this method usually isn’t the best choice for ARMs.

Monthly Statement Balances

Add up the closing balance from each monthly statement and divide by the number of months the home was a qualified residence. This is the most precise method and often produces the lowest number. If your servicer publishes an annual average balance, you can use that directly.

If a single loan sits in more than one debt category — part grandfathered, part post-2017 acquisition debt, part home equity debt not used for improvements — Publication 936 calls it a mixed-use mortgage. You track the balance in each category month by month and allocate principal payments in a set order: first to home equity debt not used for improvements, then to grandfathered debt, then to acquisition debt.¹

Working Through Table 1

Table 1 has two parts. Part I produces your qualified loan limit. Part II turns that limit into a deduction.¹

Part I: Your Qualified Loan Limit

Lines 1 through 6 deal with older debt. Line 1 is the average balance of grandfathered debt (mortgages from before October 14, 1987). Line 2 is the average balance of acquisition debt taken out between October 14, 1987, and December 15, 2017. Line 3 is the $1,000,000 cap ($500,000 if filing separately). Lines 4 through 6 compare that older debt against the cap.

If you also have post-December 15, 2017 debt, you continue through lines 7 to 11. Line 7 is the average balance of that newer debt. Line 8 is $750,000 ($375,000 if filing separately). The worksheet compares the combined old and new debt against the combined limit and lands on line 11: your qualified loan limit for the year. If you have only post-2017 debt and it’s under $750,000, line 11 simply equals your total mortgage balance and every dollar of interest is deductible.

Part II: The Deductible Amount

Line 12 is the total average balance across all your qualified-home mortgages. If line 11 is at least as big as line 12, you stop — all your interest is deductible. If line 11 is smaller, you run the ratio:

Line 13: total interest paid on the mortgages listed on line 12.
Line 14: line 11 divided by line 12, rounded to three decimal places. This is your deduction ratio.
Line 15: line 13 multiplied by line 14. This is your deductible mortgage interest.
Line 16: line 13 minus line 15. This is the interest attributable to debt above your qualified loan limit and isn’t deductible as home mortgage interest.

A worked example. You paid $42,000 in mortgage interest for the year. Your qualified loan limit on line 11 is $750,000. Your total average mortgage balance on line 12 is $950,000. Your ratio is 750,000 ÷ 950,000 = 0.789. Multiply $42,000 by 0.789 and you get $33,138. That’s what goes on Schedule A. The remaining $8,862 is non-deductible.

If some of the excess debt above the limit was actually used for business or investment purposes, that portion of the excess interest may be deductible elsewhere on your return, but that runs on separate allocation rules outside Table 1.¹

Adjustments to Make Before You Run the Numbers

A few situations change the interest figure or the debt classification you carry into the worksheet.

Points

Points paid to buy or build your main home are generally deductible in full in the year paid.¹ Points paid on a refinance spread over the life of the new loan. Refinance into a 30-year mortgage with $3,000 in points and you deduct $100 a year. Include only the current year’s amortized portion in the worksheet.⁵ If you pay off a refinanced loan early, you deduct all remaining unamortized points in the year the loan ends.

Refinancing and Cash Out

A refinanced loan keeps acquisition-debt status only up to the principal balance of the old loan immediately before the refinance. Refinance a $600,000 balance into a $700,000 loan and only $600,000 is acquisition debt. The extra $100,000 is home equity debt, and interest on it is deductible only if you spent it on substantial improvements to the home securing the loan. Keep the closing documents from every refinance — you’ll need them to trace acquisition debt through each transaction.

Refinancing a pre-December 16, 2017, mortgage preserves the $1,000,000 limit, but only up to the old loan’s remaining balance and only for the remaining term of the original loan. Once that term would have ended, the debt falls under the $750,000 cap.¹

HELOCs

What matters for a HELOC is what the money paid for. Funds used to remodel a kitchen or add a room are treated as acquisition debt (subject to the combined $750,000 cap). Funds used to pay tuition, cover a vacation, or consolidate credit card balances produce interest that isn’t deductible at all. If you used a single HELOC for a mix of purposes, track each draw separately and split the interest accordingly before entering it in the worksheet.

Reporting the Result on Schedule A

The number you carry to Schedule A is line 15 from Table 1, not the total from Box 1 of your Form 1098. If a lender sent you a 1098, that limited amount goes on Schedule A, line 8a.⁶

Interest paid to someone who didn’t issue a 1098, such as a private seller who financed the purchase, goes on line 8b, along with the lender’s name, address, and taxpayer identification number written on the dotted lines. Points not reported on a 1098 go on line 8c.¹ Seller-financed loans still run through Table 1 if the balance exceeds $750,000; private lending doesn’t exempt you from the debt cap.

You don’t attach Table 1 to your return. Keep it in your files with every Form 1098, settlement statement, and improvement receipt that supports the calculation. Hold property-related records for as long as you own the home and at least three years after you file the return for the year you sell.⁴ Those documents are what stand behind the numbers if the IRS ever asks.

1
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
3
Internal Revenue Service. Form 1098 Mortgage Interest Statement
4
Internal Revenue Service. Publication 523, Selling Your Home
5
Internal Revenue Service. Topic No. 504, Home Mortgage Points
6
Internal Revenue Service. 2025 Instructions for Schedule A (Form 1040)