Home Mortgage Interest Deduction Rules

If you own a home, the interest you pay on your home mortgage may provide a tax break. However, many people believe that any interest paid on their home mortgage loans and home equity loans is deductible. Unfortunately, that’s not true. First, keep in mind that you must itemize deductions in order to take advantage of the home mortgage interest deduction. Deduction and limits for “acquisition debt” A personal interest deduction generally isn’t allowed, but one kind of interest that is deductible is interest on mortgage “acquisition debt.” This means debt that’s: 1) secured by your principal home and/or a second home, and 2) incurred in acquiring, constructing or substantially improving the home. You can deduct interest on acquisition debt on up to two qualified residences:...

The Tax Cuts and Jobs Act of 2017 (TCJA) has caused some changes in the area of home mortgage interest deductions.  While a good amount of existing homeowners will not be impacted due to grandfather provisions that keep certain prior-law rules in place, other homeowners will be negatively impacted by a new provision that generally disallows interest deductions for home equity loans for tax years 2018-2025. This Tax Planning Letter outlines what you need to be aware of regarding TCJA’s impact on home mortgage interest deductions. TABLE OF CONTENTS HOME MORTGAGE INTEREST: Pre-TCJA HOME MORTGAGE INTEREST: TCJA "Home acquisition indebtedness" under TCJA "Home equity indebtedness" under TCJA $1 million of "home acquisition indebtedness" grandfather rules under TCJA Taxpayers who can disregard TCJA changes HOME MORTGAGE INTEREST: Pre-TCJA Prior to TCJA, a taxpayer was allowed...