Can you deduct mortgage interest on a loan from family?

The four tests

1. The loan is secured by the home, and the security is recorded

This is where most family loans fail. IRS Publication 936 requires a “secured debt”: you sign an instrument that makes your ownership in the home security for the loan, and that instrument is “recorded or is otherwise perfected under any state or local law.” In practice that means a mortgage or deed of trust, filed with the county recorder. A handshake, an email, or even a signed promissory note on its own does not qualify.

2. The home is a qualified home

Your main home plus one second home qualify. A qualified home can be a house, condominium, co-op, mobile home, or even a boat, as long as it has sleeping, cooking, and toilet facilities. A rental property is a different set of rules.

3. You’re legally obligated and you actually pay

You must be liable on the loan and actually pay the interest. Interest the lender waives or forgives was never paid, so it isn’t deductible, and the forgiven amount may count as a gift from the lender.

4. You itemize

Mortgage interest is an itemized deduction. It only helps if your itemized deductions add up to more than your standard deduction, which is worth checking with your tax preparer before you count on the savings.

How to report it

Because a family lender usually isn’t required to send you a Form 1098 (see who sends the 1098), you report the interest on Schedule A, line 8b, “Home mortgage interest and points not reported to you on Form 1098.” If you bought the home from the person you’re paying, you must also show the seller’s name, address, and taxpayer identification number there and give the seller your Social Security number; each failure can cost a $50 penalty. If a relative lent you cash to buy from someone else, that rule doesn’t apply, but keep their details on file anyway.

Your lender reports the same interest as income. If the two numbers don’t match, neither return supports the other.

The limit: $750,000 of acquisition debt

For loans taken out after December 15, 2017, you can deduct interest on up to $750,000 of debt used to buy, build, or substantially improve your home ($375,000 if married filing separately). The 2025 federal tax law made that cap permanent. Most family loans are well under it, but if you also have a bank mortgage, the limit applies to the combined total.

Five mistakes that sink the deduction

1. Never recording the mortgage or deed of trust. An unsecured family loan isn’t home mortgage debt for tax purposes.
2. Paying in cash with no record. If you can’t show what you paid and when, you can’t support the deduction.
3. Guessing the interest. Your number should come from an amortization schedule that reflects your actual payment history, and it should match what the lender reports.
4. Deducting forgiven payments. If a parent forgives a payment as a gift, there was no interest paid.
5. Missing the seller’s tax ID. In a seller-financed sale you need it for line 8b. Get it at closing, in writing, so January isn’t awkward.

Common questions