Hey Mark Kohler here and I want to talk about the new mortgage interest deduction
And I'm not talking about mortgage interest on your rental property
Those are still fully deductible. No matter how much the mortgage is or the value of the building of the mortgage itself. You're good
I'm talking about the mortgage interest deduction on your personal residence
So lots of new rules here some grandfather provisions
You want to know the basics on this so that you can get the biggest write-off on your tax return? Let's break it down
Now the best way to understand this is to understand the old rule before the tax cuts and Jobs Act so pretty much
2017 tax year and back then when we talk about 2018 until approximately
2026
We can talk about the new rule that way it's easier to make sense of this and file your current tax return moving forward
Okay, couple things before we dive into this first
We're talking about itemized deductions
If you're gonna be itemizing who you got to understand the mortgage interest deduction
If you're taking the new and larger and greater standard deduction, you don't need to worry about this
And so if you're single you're looking at about twelve thousand four hundred twelve thousand six hundred as it gets adjusted and years to come
If you're married twenty four thousand four hundred six hundred yada
That's when you take the standard deduction. If you've got mortgage interest right off some state taxes some charitable donations
You're gonna be itemizing
That's why you want to know this next we want to understand the differences between the old rule and the new rule
So it's easier and there's some provisions that carry forward. So let's talk about
2017 and back
so in 2017 and earlier the rule was you could write off the mortgage interest on up to a million dollars worth of
Home mortgages on your first or second home vacation home. It could be a first or a second loan
It could be a HELOC that it was all any mortgage interest on these homes
And then you had a kicker of up to an extra hundred thousand dollars of HELOC
mortgage that you could write the interest off as well in these second loans and second mortgages as they're often referred to or
He locks you could throw in paying off some debt. Go take a trip around the world. You could have all sorts of
Consolidation on these loans and you had basically up to a million one hundred
Thousand dollars worth of mortgages and the interest there on that was the write-off now, let's talk about the new law
Which is 2018 until 2026 now under this new provision
You can only write off the mortgage interest on up to seven hundred and fifty thousand of combined
Mortgages on your first or second home and there is no extra
$100,000 of he'd lock loan interest that you can throw on top of it
There's also some caveats on the type of debt
It has to be for the purchase of the home or improvements to the home. Now. You may say okay mark, you're done
That's easy. I got it now
I want to go through six twists if you will on this new law that you're gonna want to be aware of
Okay, twist number one and before I get there it reminds me. Make sure you get down into description
I've got a blog article on this topic that links over to my blog and I do videos and articles every week where you can
Read this and in writing it might make a little more sense. This is a big topic
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Twist. Number one twist number one is HELOC interest is okay
under this
$750,000 so you can still go out and get a home equity line of credit moving forward as long as the money's used
to improve the home and if you had an old HELOC
before this new law you can write off the interest on that if it was used to improve the home and
so let's say you have a $500,000 mortgage and a
$200,000 HELOC that we used to improve the home and you incurred it before the new law
That's fine. If it was used to improve the home, all of that interest is deductible because it's still under
$750,000 of debt number two twist. You cannot write off HELOC the interest of any type whether before the new law
After the new law you could not write off HELOC interest if it's there to consolidate debt, so you're paying off credit card debt
Traveling around the world maybe through in a couple auto loans to get a lower interest rate. Whatever
You cannot write off the interest on any HELOC debt
That is part of that consolidation of personal debt now, so you're gonna go. Oh my gosh. I had an old HELOC before 2018
Part of it was to improve the home and part of it was to consolidate debt
So now you got to do the math and you got to say ooh well have that
$200,000 of HELOC debt a hundred of it was to improve the home a hundred of it was debt
Consolidation so you can only write off the interest on half of that loan
So you're gonna have to do some math in this process and make sure your accountant if you're having a tax preparer do this
Understand what that loan looked like that you incurred before the new law
Number three, let's talk about that grandfather provision
also on the total amount of debt if you had a debt on
Your home purchase for at debt acquisition or improvement
That was up to a million dollars and you incurred that debt before the new law
You're allowed to stay with the $1,000,000 worth of debt now
you don't get the kicker of that hundred thousand dollars worth of HELOC debt and interest, but you can be
Grandfathered in and keep the million dollars worth of debt and the interest thereon as a write-off
If you incurred that mortgage before
January 1st, 2018
But moving forward is still it's only that seven hundred and fifty thousand dollars of combined debt fourth twist
And I love this one. This is an important one to know
Can you write off the interest to go buy a vacation home? Yes
second home
Qualifies for mortgage interest that could be an RV even it could even be a boat or a yacht if you're in that market
Because it's got toilet facilities and a bed in it
It counts as a second home so that the interest on that would be a write-off as a second home
But if you take out a HELOC or a home equity line of credit on your primary residence
To go buy the second home or the RV. It's not a write-off
It's got to be a new acquisition debt used to acquire the second home
Then that interest is a write-off and that goes for the grandfather provision. So if you bought an RV back in
2015 and you got a new loan to do it
the interest is still a write-off on that as long as your combined debt is under 750 grand and
If you're grandfathered in with a another loan, you can even get up to the million
But if you took out a home equity line before the new law to buy the RV
that is not a write-off because
It's a home equity line not used to improve the property that HELOC was against number five twist the reef
I I had a phone call about this from a client just a week ago
Let's say you're now under the new law. You've got a million dollars worth of mortgage debt
So you're grandfathered in you bought a home before 2018 and you've got this bigger debt
And you can write off the interest on it, and now you refi the whole million dollars
Can you write off the interest on that when the new law says?
It's only 750 the answer is yes
Because you're refining a debt before 2018 that was used to purchase the home or to improve it
So if you refi that whole thing, you can still write off the interest on up to a million dollars
But beware if the refi has any sort of debt
consolidation or you're using some of that refi money to go buy the RV or a second home that
Interest on that portion of the refi would not be a write-off
Now that's a little tricky at skin and my blog article read up on it talk to your accountant on that sixth twist
International property that's right. You can write off the interest on a second home. Even if it's not in the US and
it's a write-off again keeping it under the
$750,000 cap, but it has to be debt used to or incurred to acquire the property
You can't again take out a HELOC on your primary home and go buy a property
International and write off the interest on that. You got to go get a new debt in that
This locale to get that second home. And then the interest on it is a write-off in summary little technical, right?
It sounds crazy, but you want to know these rules so that you can talk to your accountant
Intelligently or if you're preparing your own tax return you could rock it and know exactly what to do on that Excel spreadsheet. So
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