Randall S. van Reken, EA, CFP, ATP

Tax Man LLC

Tax Changes 2018

What About My Mortgage Interest?

They did fiddle with mortgage interest and this one may have some impact on you.  But first a definition:

Acquisition Debt and Non-Acquisition Debt

Acquisition debt is money you borrowed to buy, build or improve your principal residence or second home.  Non-acquisition debt is everything else.  This is only regarding homes used personally, not rental property  Rental property mortgage interest is still deductible.

What they changed was a new lower limit on new mortgages used for acquisition debt.  The new limit is $750,000 of total debt for new loans after December 14, 2017 (why not just January 1 you idiots???!!!).  The old limit for older loans and is $1,000,000 in total debt for loans in place before then.

If the debt was NOT to buy, build or improve the home(s), goodbye to the deduction.

First or Second Mortgage Doesn’t Matter

It doesn't matter that the loan is a "first" mortgage or a "second" mortgage.  What matters is what the loan proceeds did for you.  If you bought, built, or improved your home, it’s good to go.  If you didn’t use it for that, don’t hold your breath.  

Example 1 - You bought your house on of those old 80/20 loans with a first and a second but they both went to the purchase price.  Both loans count.

Example 2 - You bought your house and refinanced the loan to a lower rate, but didn’t take any cash out on the refi.  It counts.

Example 3 - You paid your house off years ago.  But then borrowed $100,000 to send the kids to college.  Tough! No deduction.

Example 4 - Your have your old first mortgage from when you bought the home, but took out a HELOC.  Is it deductible?  I don’t know, what did you do with it?

A. Paid off the car, credit cards and went on vacation?


B. Built a pool and did a major remodel?

Good to go with the deduction

C. Built a pool with $30K and paid of a car loan for $20K?

You’ll get 60% of the interest paid as a deduction 

D. Bought a piece of investment land?

Deductible as investment interest potentially, but not home mortgage interest.