One Million Max | Mortgage Interest Deduction & your Tax
What is the rule?
There seems to be some confusion regarding the “1 million dollar” deduction homeowners can take on their tax return for mortgage interest.
- Is it that you can actually deduct up to a million dollars in mortgage interest per year?
- If that is true, is that only for your primary residence?
- Is it combined interest up to a million dollars, between your primary home and your vacation home and perhaps your HELOC (home equity line of credit) too?
These are the exact questions that my clients are asking…..and we are just a day or two away from Tax Deadline day!
I suggest that you quickly read Pub 936 on Home Mortgage Interest Deduction. Click here to download.
Or, file an extension and read it slowly.
Either way, the million dollars referred to is the MAXIMUM HOME ACQUISITION DEBT (loan amount), and that’s CUMULATIVE between primary and secondary homes. For example, if you have an $800,000 loan on your home and you have a vacation home at the beach with a loan of $500,000,even though you are paying interest on 1,300,000, you can only deduct the interest paid on the first million of mortgage debt.
Yes, you can deduct the interest paid on your second home loan, but only up to combined loan amounts of 1million.
And what about the interest you are paying on your HELOC? Well, according to the IRS, you are also entitled to deduct a maximum of 100,000 of home equity debt—and yes, that is a COMBINED total. (So, if you’ve used $100,000 of your primary residence HELOC, and $50,000 of your beach house HELOC, you can only deduct the interest paid on one hundred thousand—not on the combined $150,000.)
Seems like they should call this the $1.1 million dollar combined debt interest deduction. Whomever “they” are, but that’s another blog topic all together.