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  • Denise Hue

Interest Expense - Standard Deductions (2019 Update)

Mortgage Interest

You generally may deduct interest on home acquisition debt that is secured by a first or second home. This includes interest on home equity debt that also qualifies as home acquisition debt. However, there are limits on the amount of acquisition debt that can support an interest deduction. Home acquisition debt is debt used to buy, construct, or substantially improve the residence that secures the loan.

Mortgage interest is deductible on up to $750,000 ($375,000 if married filing separately) of home acquisition debt taken out after December 15, 2017. Acquisition debt incurred on or before December 15, 2017, is “grandfathered,” so the prior law limit of $1 million ($500,000 if married filing separately) still applies to these loans for purposes of deducting interest on your returns for 2018 through 2025.

If you refinance grandfathered debt (debt obtained before 12/16/17), the refinanced debt remains grandfathered to the extent of the loan balance at the time of refinancing;

Home Equity Interest

The Tax Cuts and Jobs Act generally prohibits a deduction for interest on a home equity loan for 2018 through 2025. However, If a home equity loan is used to buy, construct, or substantially improve a first or second residence that the loan is secured by, the loan falls within the definition of home acquisition debt, so if the applicable limit on acquisition debt has not been reached, the interest on the home equity loan falling within the limit can still be deducted.

Private Mortgage Insurance

As part of the efforts to revive the housing market, Congress passed a law allowing a tax deduction for the cost of PMI for homes and vacation homes. Under the law, premiums for mortgage insurance (PMI) were lumped together with deductible home mortgage interest on Schedule A. The provision expired but was renewed and extended to 2020 as part of the Consolidated Appropriations Act signed in December.

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