Mortgage Interest Deduction

Mortgage Interest Deduction

A cap on eligible deductions mean fewer will take this popular write off.

The new law reduces the amount of indebtedness on which taxpayers can deduct mortgage interest. It used to be that one could deduct the interest on mortgage loans up to $1 million, plus the additional interest on up to $100,000 of any home equity line of credit (HELOC). The new law reduces the applicable mortgage loan amount to a maximum of $750,000 borrowed for the purpose of original purchase financing or home improvements. Interest paid on a HELOC used to buy, build or substantially improve the taxpayer’s home is typically deductible.

This new limit applies to new loans made.  Loans originated prior to the tax law coming into effect are unaffected.

There are exceptions, such as the interest deductibility on the refinancing of existing loans will still be allowed up to $1 million. Additionally the interest on any refinanced HELOC is also allowed, if used for housing-related purposes (but only if the combined total of it and the mortgage do not exceed $750,000). Again, this could affect certain future decisions about financing your residence. Ultimately, though, the limitation of many other deductions plus the availability of the new, higher standard deduction might mean that far fewer taxpayers are able to deduct mortgage interest; and the persistent low (but rising) interest rate environment is also a consideration for new home buyers.

Click below to return to the full 2018 Tax Review:

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