Dear Community A noob question about *Mortgage interest deduction limit*This means that, any interested paid for the loan amount beyond the $750K is NOT deductible?

[bohueilin]

A noob question about *Mortgage interest deduction limit*This means that, any interested paid for the loan amount beyond the $750K is NOT deductible?

The guidelines: After Dec 15, 2017 stated that:

You can deduct the mortgage interest you paid on up to $750,000 in loans for your first or second home

[Question] This basically means that, any interested paid for the loan amount more than $750K is NOT deductable?

Example:

Loan Amount: 1M
Interest Rate: 1%
Meaning Intestest is: 10K

However, the interest rate paid for 750K+ ~ 1M is not allowed for deduction,

Therefore, I can only deduct: 7.5K? (the 1% of first 750K loan)


Thanks

[Anonymous_]

See https://www.irs.gov/publications/p936#en_US_2022_publink1000229891

[DMarkM1]

Yes.  Generally you are correct and the reference provided by @Anonymous_ is great.  

Just keep in mind the deductible interest amount will be part of a ratio.  For example your loan limit is 750K, but the denominator will be the average balance of your mortgage loan for the year.  

The original loan may be 1M but the average balance will most likely be less. Therefore the math my be 750/900 = .833 which you will then multiply by how much interest you actually paid during the year (shown on your form 1098). 

[bohueilin]

Thank you,

In your example of 750/900.  

Is 900 here as an example of loan amount being: 900k?

Also, when you said > you will then multiply by how much interest you actually paid during the year (shown on your form 1098). 

I think Turbotax will calculate for us right :P. i can perhaps use that as the example to validate the calculation provided by Turbotax (if i want to validate)

Thank you

[DMarkM1 · Accepted solution]

To answer your second question first, yes.  TurboTax will do the calculations based on your form 1098 inputs.  As for the 1st question, not quite.  In my example the loan amount may have been $1M when you took it out, but would have been reduced by any payments throughout the year.  The 900K would be an average loan balance for the year.  

[bohueilin]

Thank you so much 🙂

I imagine the  average loan balance is the average amount of the statement balance over the 12 month

Greatly appreciate your help DMarkM1