Home Mortgage Interest Before and After Tax Reform
Qualified residence interest, that is interest paid on a home mortgage may be claimed by an individual if it is paid or accrued on either acquisition indebtedness or home equity indebtedness.
Acquisition indebtedness is any debt to buy, construct, or substantially improve a qualifying residence of the taxpayer and is secured by the residence.
Home equity indebtedness is any debt that is not acquisition debt that is secured by a qualifying residence of the taxpayer to the extent it does not exceed the fair market value of the residence reduced by acquisition debt if any.
The amount of acquisition debt may not exceed $1 million, and $500,000 if married filing separately.
The limit is reduced to $750,000 or $375,000 for married filing separately for tax years beginning in 2018 through 2025.
Generally the reduced limit applies to debt incurred after December 15, 2017, there are exceptions: If the taxpayer had a binding written contract before December 15, 2017 to purchase a qualifying residence before 2018, or refinances an existing acquisition debt to the extent of the original loan amount, the reduced limit does not apply. The refinancing exception expires after the expiration of the original loan, or the earlier of the expiration of the first refinanced debt or 30 years.
For tax years beginning before 2018, the aggregate home equity debt may not exceed $100,000 and $50,000 if married filing separately, or the fair market value of the residence less the total amount of any acquisition debt.
For tax years 2018 through 2025, a taxpayer generally may not claim a deduction for interest paid or accrued on any home equity debt unless it is used to buy, build, or substantially improve a qualified residence. The $750k/$375k limit applies to the combined amount of such loans.