Mortgage Interest Deduction

[New Yorker]

The cap on mortgage interest deductions is really confusing me.

I have two mortgages: a $460K mortgage that I took out in 2016, and a $700K mortgage that I took out in 2019.

In 2019, neither property was used as a rental (I was living in the one I bought in 2016 and renovating the new property).

Am I allowed to deduct mortgage interest on both mortgages?  My understanding is yes, because the $450K mortgage from 2016 is under the $1 million cap (for mortgages taken out before Dec 2017), and the $700K mortgage from 2019 is under the $750K cap (for mortgages taken out after Dec 2017).

Is that right?  

[KrisD15]

No, the "Grandfathered" debit is not limited, but it does reduce the limit for the other debt you took out after. 

According to the IRS:

“Grandfathered debt isn't limited. All of the interest you paid on grandfathered debt is fully deductible home mortgage interest. However, the amount of your grandfathered debt reduces the limit for home acquisition debt.”

IRS Pub 936

[New Yorker]

Thanks, but according to Publication 936, "grandfathered debt" refers only to mortgage originated prior to October 1987.  Since my mortgages are from 2016 and 2019, my understanding is that neither counts as "grandfathered debt."  

[VictoriaD75]

The limit on the amount of interest has changed under the Tax Cuts & Jobs Act. The interest deduction pre-Tax Cuts & Jobs Act has been available to qualified mortgage debt up to $1 million ($500,000 married filing separately). Through 2025, the TCJA has lowered the amount of qualified mortgage debt to $750,000. For qualified mortgage debt incurred on or before December 15, 2017, the $1 million limit remains in place (thus "grandfathering" existing mortgage debt).

After 2025, the qualified mortgage debt limit returns to $1 million, regardless of the date of the mortgage. Refinancing pre-TCJA qualified mortgage debt retains the $1 million limit as long as the refinanced debt does not exceed the debt balance at the time of the refinancing.

[New Yorker]

Thank you.  But I'm confused how the pre-2017 $1 million cap and the post-2017 $750K cap applies to my situation - as I have mortgage from both time periods.  Since I have a $450K mortgage from 2016 and a $700K mortgage from 2019, do they get added together and capped (and if so, would it be the $1 million cap or the $750K cap)?  or does each mortgage stand on its own and is subject to its own cap based on when they were originated (i.e. $1 million for the 2016 mortgage and $750K for the 2019 mortgage)?  

[KrisD15 · Accepted solution]

You can click the link and look at page 12. 

The Grandfathered debt can be up to 1,000,000. If it were, it would not be reduced, but all your other debt would be zero'ed out. 

Since your Grandfathered debt is 450,000, that full amount is allowed, but it is also subtracted from the 750,000 limit for the newer debt. 

So in other words, any Grandfathered debt over 750.000 would not matter to the new debt and the interest on the entire grandfather's debt would be allowed. 

If you had 800,000 grandfathered and 100,000 new debt, 800,000 would be the limit. 

800,000 and 250,000, 800,000 would be the limit

500,000 and 400,000, 750,000 would be the limit

Please see page 12