Mortgage Refinance grandfathered into old $1 million debt limit?

[caz1]

Got a 30 year mortgage for $1.17 million back in 2016 when the interest deduction cap was $1 million debt. 

Refinanced the remaining principal ($1.01 million) to a new 30 year mortgage for a lower rate in 2019.

My understanding is I'm still allowed to deduct interest up to the old debt limit of $1 million since my refinance was just a rate and term change with no additional money borrowed.

Is this correct?

[MarilynG1]

Yes, when you refinance a mortgage that was treated as acquisition debt, the balance of the new mortgage is also treated as acquisition debt up to the balance of the old mortgage.

There will be a Home Mortgage Interest Worksheet in your return where you can review the calculations. 

Click this link for more detailed info on Mortgage Interest Limitations.

[caz1]

@MarilynG1 

Thank you for the response.

If I borrow an additional $4k for closing costs with a remaining principal at time of refinance of $1.01 million.  Then:

1. I can continue to deduct the interest on the $1.01 million (adjusted proportionally to the old $1 million debt cap) for the remaining duration of the refinance loan

2. I cannot deduct interest on the $4k for closing costs.

Is my understanding correct?

[DawnC · Accepted solution]

Correct.  No deduction for the interest paid on the additional 4K.   You can deduct the interest on the refinanced amount, apportioned up to the $1M limit, since the original loan you replaced was from 2016.  

[ramiroleon]

Hi DawnC and community, I have the following case:   I got a Mortgage loan of $890K in 2016 and I was able to deduct 100% of interest from my taxes.   Now I will refinance the loan for $1.050K to cash out some bucks to pay for an addition and home improvements.   The question is,

1) How much of the $1,050K interest I will be able to deduct now in 2021?.

2) Can I deduct the closing costs and transfer taxes?.

Thank you!