The new tax law (TCJA) imposes a lower dollar limit on mortgages qualifying for the home-mortgage-interest deduction.

Beginning in 2018, taxpayers may only deduct interest of $750,000 of qualified residence loans. This is down from the prior limit of $1 million. The limit applies to the combined amount of loans used to buy, build or substantially improve the taxpayer’s main home and second home.

Additionally, the Tax Cuts and Jobs Act (TCJA) suspends from 2018 to 2026 the deduction for interest paid on home-equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan. The following examples illustrate these points.

Example 1: In January 2019, David takes out a $500,000 mortgage to purchase a main home with a fair market value of $800,000. In February 2019, the taxpayer takes out a $250,000 home-equity loan to put an addition on the main home. Both loans are secured by the main home and if the total does not exceed $750,000, all of the interest paid on the loans is deductible. However, if the taxpayer used the home-equity-loan proceeds for personal expenses, such as paying off student loans and credit cards, then the interest on the home-equity loans would not be deductible.

Example 2: In January 2019, Jill takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2019, the taxpayer takes out a $250,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages does not exceed $750,000, all of the interest paid on both mortgages is deductible. However, if the taxpayer took out a $250,000 home-equity loan on the main home to purchase the vacation home, then the interest on the home-equity loan would not be deductible.

Example 3: In January 2019, Alex takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2019, the taxpayer takes out a $500,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages exceeds $750,000, not all of the interest paid on the mortgages is deductible. A percentage of the total interest is deductible. For more information, see IRS Publication 936, Home Mortgage Interest Deduction.


Barry Lisak is an IRS Enrolled Agent, meaning that he has passed special U.S. Treasury Department exams that qualify him to represent clients dealing with audits or tax-resolution cases. Any questions can be directed to him at (516) TAX-SAVE, or mrbarrytax@aol.com.


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