Mortgage Interest

For acquisitions before 2018

  • Principal Residence Secured Mortgage Interest Expense (for property acquired before 2018)
    • up to $1MM of secured mortgage debt incurred for the original acquisition or construction plus any secured mortgage debt to substantially improve the property. Including any secured mortgage debt resulting from a refinancing, but only to the extent that the loan balance does not exceed the amount of the refinanced indebtedness. Debt qualifying as acquisition debt may be obtained up to 90 days before or after the purchase. See IRS Publication 936 and IRS Notice 88-74.
    • up to $100K of HELOC debt. See Rev. Rul. 2010-25
  • One additional residence – Vacation Home Secured Mortgage Interest Expense (for property acquired before 2018)
    • up to $1MM of secured mortgage debt incurred for the original acquisition or construction plus secured mortgage debt to substantially improve the property. Including any secured mortgage debt resulting from a refinancing, but only to the extent that the loan balance does not exceed the amount of the refinanced indebtedness.
      • not to exceed $1MM combine total for both the Principal Residence and the Vacation Home
    • up to $100K of HELOC debt
      • not to exceed $100K combine total for both the Principal Residence and the Vacation Home
    • not to exceed an overall $1.1MM combine total for both the Principal Residence and the Vacation Home
  • For property acquired before 2018 when the total of debt on both residences exceeds the $1.1MM overall limitation, then a fairly complicated allocation between deductible and nondeductible interest needs to be sent to the IRS each year
  • If there is one acquisition debt on one home acquired before 2018, then a full $1.1MM may be deductible pursuant to CCA200940030. and Rev. Rul. 2010-25.

Starting for acquisitions after 2017

interest on only $750,000 of debt is allowable.

Starting with 2018

interest on HELOC debt is generally not deductible.

Other Rules

  • The above covers your main home and your second home (you may only have one second home at a time). A home includes a house, duplex, condominium, cooperative, manufactured home, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.
  • The above limitations generally apply to each individual co-owner of the residence. If two such individual co-owners subsequently get married, then the limitation applies to the couple whether they choose to file married jointing or married separately. Example: two individual co-owners may deduct up to $2.2MM, but once they are married, only up to $1.1MM would be deductible as homeowner interest. See Voss v. Comr. 2015 Also see TaxProfBlog
  • With regards to the taxpayer’s original acquisition loan for the principal residence, the mortgage points, loan origination fees or loan discount etc. (points) – they are generally currently deductible if the taxpayer chooses to do so. It generally makes no difference on the buyer or the seller actually pays the points. But points paid during a refinance of the principal residence loan are not currently deductible, rather they are amortized over the life of the replacement loan or until that loan is paid off or under certain conditions, when it is refinanced again. See the list of 9 conditions/requirements here: IRS Topic 504.
  • A taxpayer might choose to not deduct points currently if he is not benefiting from itemizing deductions (such as a first time homeowner’s purchase late on the year). Then upon refinance in a future year the unamortized points may be fully deductible.
  • Delinquent past due interest that is capitalized as part of a loan modification with the same lender likewise is amortized over the life of the modified loan, or until that loan is paid off. Copeland v Commissioner T.C. Memo. 2014-226 Bank of America was sued in 2014 for failing to show this amortized interest on IRS Form 1098. Smith et al. v Bank of America also see Forbes Jan 6, 2015.
  • An irrevocable election (10-T election) may be filed to treat the secured debt as unsecured debt pursuant to Reg. §1.163-10T(o)(5) (for example to allow the interest expense to be considered investment interest).
  • Equitable ownership may result in the “Principal Residence Secured Mortgage Interest Expense” to be deducted by an individual who is not named on the title deed and/or not directly liable on the mortgage note. see Edosada, T.C. Summary 2012-17 and Uslu, T.C. Memo. 1997-551.
  • Reverse Mortgage interest generally accrues on the reverse mortgage proceeds but that accrued interest is not deductible until it is paid.
  • Can taxpayers deduct mortgage interest on a residence when the property title and mortgage are held in a another person’s name? Uslu v Commissioner, T.C. Memo. 1997-551: Where the taxpayers are equitable and beneficial owners of the property, enjoying exclusively the burden and benefit of the property, payments of interest are deductible. (See Federal Tax Regulation 1.163-1(b))
  • Equitable Owner Equals Deduction See Ndile George Njenge and Ekinde Sone Nzelle Rachel v. Commissioner, TC Summary Opinion 2008-84