What Mortgage Interest is Tax Deductible?
From the Desk of Herb
Under the new tax act (Tax Cuts and Jobs Act), commencing in 2018, deductible mortgage interest is capped at $750,000 of debt per couple ($375,000 per person). There are certain grandfathered loans under the $1.0 million/$500,000 cap under prior law related to loans before December 16, 2017.
To be deductible, the mortgage must be secured by your principal residence and/or your second residence. Further, the debt proceeds must be used to pay for the home’s acquisition, construction or substantial improvements, including any refinancing thereof. Next, the mortgage debt must be secured by the residence on which the debt proceeds were invested.
Mortgage interest is an itemized deduction so you will only deduct it if your total itemized deductions exceed the new higher standard deductions of $24,000 per couple (or $12,000 per person or $18,000 for head of household, with an additional standard deduction if you are 65 or older).
Also keep in mind that your itemized deductions will be reduced (phased out) if your total adjusted gross income exceeds certain thresholds and your individual itemized deduction are subject to new limitations such as the $10,000 cap on state and local taxes and the 7.5% AGI floor for medical expenses (10% in 2019). Therefore, your out-of-pocket cost for post-2017 itemized deductions need to materially exceed your new standard deduction to justify the interest cost to you of maintaining your mortgage loan(s). In contrast, you have no out-of-pocket costs for the standard deduction.
Questions about the new tax laws?
Contact Herb Fineburg at
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