Interest dedution limits on a refiance on a loan that was started 7 years ago.

I am thinking of refinancing my home loan (which I last refinanced 7 years ago). If I do this, will I be limited to the $750K interest deduction limits or will it stay at $1,000,000 in 2021?

posted

For 2021, the limit is the mortgage interest paid on the first $750,000 of indebtedness for a married couple or $375,000 if single or married filing separately.

However, tax law do change quickly these days.

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the rule is based on the date the loan was taken out.....so you are limited to $750,000 for full interest deduction.

however, over time, all the interest will become deductible as the loan amortizes.

the IRS assumes that the part over $750,000 is what amortizes first so what is deductible is $750,000 / loan balance * interest. That percent will continue to increase towards 100% as the 'loan balance' decreases towards $750,000.