How Does the New Mortgage Interest Deduction Affect You?

Are you planning to buy a new home? Are you thinking of refinancing your mortgage? Or taking out a home equity line of credit? If you answered “yes” to all the questions, then it’s important for you to know the new tax law regarding mortgage interest deduction.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Here are seven things you need to know about the new mortgage interest deduction:

• Effective date  – any loan started after 12/15/17.
• New 2018 tax law – you can deduct interest for up to $750,000 in new mortgage debt for your first and second home. Under prior law, you can deduct mortgage interest on $1 million of home debt and $100,000 of home equity debt.
• Couples filing separately – each spouse can claim $375,000 in mortgage interest deductions.
• Grandfathered debt – any mortgage loan you entered before 12/15/17 will allow you to claim interest up to the $1 million ($500K for married couples filing separately) for your first and second home.
• Mortgage refinancing – you can deduct your mortgage interest if you refinance your mortgage debt up to $1 million on or before 12/15/17. But the new loan can’t exceed the amount of the current mortgage being refinanced. Example – If you have a $1 million mortgage and you paid it down to $700,000, then you can refinance it up to $700,000 of debt and continue to deduct interest on it. If you refinance it for $900,000 and you use $200,000 of cash to upgrade your home, then you could also deduct the interest on $900,000. But if you refinance for $900,000 and simply pockets $200,000 of cash, then you could deduct interest only on the $700,000 of refinancing.
• Home equity line of credit (HELOC) debt – interest on a HELOC is only deductible if the loan proceeds are used to make substantial improvements to your home, and the combined total of the first mortgage and home-equity line of credit or second mortgage does not exceed $750,000.
• State conformity – determine if your resident state agrees with the federal law. For example, in California, you can still deduct mortgage interest on $1 million of home debt and $100,000 of home equity line of credit (HELOC) debt.

There you have it. Those are the seven things you need to know about the new mortgage interest deduction.

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Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.