Cap on Mortgage Interest

Updated: Apr 14, 2020

If you obtained a mortgage to buy or build your principal residence (plus one other home) before Dec. 16, 2017, you’re in the clear and can deduct all your mortgage interest (called “acquisition indebtedness”) on borrowing up to $1 million ($500,000 if you’re married and file separately). But if you have a newer mortgage, you’re limited to interest on $750,000 (again half that if you’re married and file separately).

Until now, individuals tapped the equity in their homes to pay off credit card debt, take a vacation, or finance their child’s education. But on 2018 returns no deduction can be taken for interest on a

home equity loan

, regardless of when you obtained it. However, if you use the proceeds to add an addition to your home or make other substantial improvements, the

interest is viewed as acquisition indebtedness

, which is deductible subject to the overall limit above.

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