Deduction for home mortgage and home equity interest modified

The Tax Cuts and Jobs Act made some changes in the deduction for home mortgage interest and modified the deduction for home equity interest. 

If you itemize, no matter when the debt was incurred, interest paid on most home equity loans is not deductible unless the loan proceeds were used to buy, build, or substantially improve your main home or second home. The loan still must be secured by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home, and meet other requirements. 

• What this means is that you can no longer deduct interest on home equity loans that were used e.g., to pay for college tuition, medical bills, or pay off credit card debt.

The date you took out your mortgage or home equity loan may also impact the amount of interest you can deduct.

•          If your loan was originated or treated as originating before Dec. 16, 2017, you may deduct interest on up to $1,000,000 ($500,000 if you are married filing separately) in qualifying debt.
•          If your loan originated on or after that date, you may only deduct interest on up to $750,000 ($375,000 if you are married filing separately) in qualifying debt.

The limits apply to the combined amount of loans used to buy, build or substantially improve the taxpayer’s main home and second home. 

• A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.

Special rules apply to maintain these limits if you refinance your debt. 

For more information, see the 2018 Publication 936, Home Mortgage Interest Deduction.