RaifH
Expert Alumni

Deductions & credits

When the average balance is calculated correctly and you are paying the same interest rate on all your loans, the mortgage interest limit will not reduce the mortgage deduction, but it would keep it at the same amount as if your mortgage was for $750,000. 

 

On the other hand, if you have a high-interest rate mortgage that you refinance out of to a lower rate and the total balances add up to over $750,000, you may see a lower overall mortgage deduction than you would have prior to adding the new, lower-rate mortgage. As for why that is or what the intent of it is, I'm not really qualified to speak on that. 

 

With that in mind, I should correct myself from earlier and say that you can actually exclude your home mortgage interest from being deductible and you would not have to include it. This is normally only done to use the interest as an expense somewhere else and it would require IRS permission to make the mortgage interest an allowable deduction again in future years.