Let me start off by saying I am not a tax advisor, I am a Certified Mortgage Planning Specialist and that this post, like others is based on my level of knowledge and expertise and may or may not apply to your specific situation.  This is derived from tax codes and simply shows the possibilities you may have to deduct mortgage interest beyond your current limitations.

OK, quick recap on mortgage interest deductibility...

Acquisition Indebtedness (AI) - As implied by its name, it is the debt at which you obtained the home originally.  If you pay down (or off) your mortgage, it is reduced.  Home improvements, divorces, and other things may allow you to increase the amount, but follow the code and document everything.  Many who did cash-out refinancing have been deducting their interest illegitimately because they exceeded AI plus Home Equity Indebtedness.  AI is limited to the interest accrued on the first $1M dollars of qualified mortgage debt from primary and one second home.

Home Equity Indebtedness (HI) - No magical formulas here.  It is a straight limit of $100,000 in excess of AI.

Add the two together and you could be able to deduct up to $1.1M dollars of mortgage interest.  PMI may be deductible as well if you fall within the limits for that deduction, but it is a seperate issue.  AMT may apply to you and limit your deduction as well.  There are also Itemized Deduction Limitations for those who make a lot of money, so you can see there are many "gotchas" if you do not do things correctly.

But, let's say you are very wealthy and want to be able to deduct mortgage interest beyond the $1.1M cap.  These options could also if AMT or other tax limitations hit as well, again consult a tax professional or the tax codes themselves for your specific situation.

One way to break the barrier and is generally without limitations on deductibility is by using your mortgage to fund taxable investments.  You see, there is no cap on the deductibility on investment interest expenses if used on taxable investments, except that your deductions cannot exceed your net investment income. You would show it on Form 4952.  The limitations are as follows...

• Generally, your deduction for investment interest expense is limited to the amount of your net investment income.
• You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. The interest carried over is treated as investment interest paid or accrued in that next year.
• You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued.

If you take out a mortgage or other loan realted to your ownership of investment real estate, that interest would be deductible as well.  You would use a Schedule E in this case.  Additionally, if you take out a mortgage or other loan to purchase business assets including inventory, working capital, or some other business related reason, you could deduct that interest using a Schedule C. 

As you can see, there are ways to get around the standard mortgage interest deductions and use your mortgage as a tool to use your home equity elsewhere providing more opportunities.  Once again, do not just go out and take out a mortgage for any of these reasons without first consulting a tax advisor and a mortgage planner to confirm these will work for you.  This is just another strategy you may able to use to increase your liquidity, safety and rate of return and build wealth over time.