Legal Blog
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
ABOUT HERB FINEBURG
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Mr. Fineburg is recognized as one of Philadelphia’s most respected business lawyers whose substantial knowledge of tax law provides clients with strategic and cost-saving benefits in connection with commercial transactions, taxation and wills, trusts and estates matters. Known for his ability to resolve complicated matters effectively, Mr. Fineburg has assisted businesses and individuals with the organization of their finances, business and real estate affairs, and the structure of their assets (i.e., in LLCs, partnerships, corporations, trusts or joint ownership). He has substantial expertise in the preparation of buy-sell agreements for co-owners who are family members or unrelated business partners and has handled the resolution of shareholder and partner disputes and buy-outs. In addition, to working on bank financings, business contracts and employment matters for his business clients, Mr. Fineburg also provides advice on business acquisitions and sales. Mr. Fineburg, who began his law career as a commercial litigator and bankruptcy lawyer, frequently provides litigation counsel and assistance to a wide range of firm clients. His articles have appeared in the Pennsylvania CPA Journal, the Journal of S Corporation Taxation and other publications. A graduate of Washington University in St. Louis, Mr. Fineburg received his law degree from the University of Missouri and a Master of Laws in Taxation (LL.M) from the New York University School of Law, Graduate Division. Mr. Fineburg is the Managing Shareholder of the Philadelphia office and is also a member of the Board of Directors at Offit Kurman.
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