Old law:
Under old rules, you were able deduct interest on $1 million ($500K for married filing separately) of mortgage debt used to acquire your principal residence and a second home (acquisition debt). You were also able to deduct interest on home equity debt. Home equity loan did not have to be used to acquire or improve the homes and could be used for education, travel, or health care.
New law:
The Tax Cuts and Jobs Act (the “Act”) reduced the limit on qualifying acquisition debt to $750,000 ($375,000 for a married taxpayer filing separately). However, for acquisition debt incurred before December 15, 2017, the higher pre-Act limit applies. The higher pre-Act limit also applies to debt arising from refinancing pre-December 15, 2017 acquisition debt as long as the debt resulting from the refinancing does not exceed the original debt amount. This means that you can refinance up to $1 million of existing acquisition debt in the future and not be subject to the new reduced limitation.
Home equity interest deduction:
The good old home equity interest deduction is gone. It is gone regardless of when the home equity debt was incurred. You will not be able to deduct interest on future home equity loans anymore. You won’t be able to deduct interest on existing home equity loans either. Sorry.
Old home mortgage interest deduction may come back in 2026:
Really? We can’t even predict what happens next year with Republicans holding on to the Senate and Democrats taking over the House. What more to 2020 when Democrats try to retake the White House or 2024 when they try to keep it or the Republicans try to take it back…
* * *
Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
* * *
He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].
