Understanding the PA Mortgage Interest Deduction Limit

Pennsylvania doesn’t offer a mortgage interest deduction on the PA-40, but Pennsylvania homeowners may qualify for one on their federal tax return. The federal deduction has its own limits based on how much qualifying mortgage debt you have, so not all of the interest you pay is necessarily deductible. 

Phoenix Tax Consultants provides tax preparation services for Pennsylvania taxpayers. In this article, we’ll explain the federal mortgage debt limits and how refinancing or owning a second home can affect the deduction.

How the Mortgage Interest Deduction Works for Pennsylvania Homeowners

If you pay interest on your mortgage, you may be able to use some of it to lower the income you’re taxed on federally. To do that, you generally have to itemize. This just means listing your eligible expenses on your tax return instead of taking the standard deduction. The IRS form used for that list is called Schedule A.

The deduction is for the interest you pay, not your entire mortgage payment. The loan generally needs to be secured by your home and used to buy, build, or make major improvements to it. If you paid at least $600 in mortgage interest, your lender will generally send you Form 1098 showing the amount paid.

How Much Mortgage Debt Qualifies for the Deduction?

The date you took out your mortgage helps determine how much debt qualifies for the interest deduction:

• For qualifying mortgages taken out after December 15, 2017, the limit is generally $750,000 of mortgage debt, or $375,000 if you’re married and file separately.

• For qualifying mortgages taken out before December 16, 2017, a higher $1 million limit may apply, or $500,000 if married filing separately. Special rules apply to much older mortgages and certain loans around the 2017 cutoff.

The $750,000 limit applies to your mortgage debt, not the amount you can deduct from your taxes. For example, if you took out an $800,000 qualifying mortgage in 2025, your loan is $50,000 over the limit. That means some of the interest you pay won’t qualify for the deduction. 

What If You Refinance or Own a Second Home?

Those mortgage debt limits can become a little more complicated if you refinance or have a mortgage on a second home. 

If you refinance, the new mortgage can generally keep the same treatment up to the remaining balance of the mortgage you replaced. If you borrow more than that balance, what you do with the additional money affects whether the interest on that portion qualifies.

A second home can also qualify for the mortgage interest deduction, but it doesn’t come with another $750,000 debt limit. The applicable limit is shared across the qualifying mortgage debt on your main home and second home.

Get the Mortgage Interest Deduction Right on Your Return

How much mortgage interest you can deduct depends on details such as when you took out the loan and how the money was used. Phoenix Tax Consultants can review your mortgage information while preparing your federal and Pennsylvania tax returns. Not sure how much of your mortgage interest qualifies? Call (610) 933-3507 or schedule a consultation before you file.