tax-deductible mortgage limit after refinance in 2019

[dqsanjianxia]

I bought a house as primary residence in early 2017 with over 1 million loan. It applies with old limits on mortgage interest deduction at $1,000,000.

In mid 2019, we have refinanced the mortgage in rate-and-term refinance transaction (not cash-out). We receive two 1098 for 2019, for old and new mortgage. 

My question is: Are we still eligible for old limit at $1,000,000 after refinance? Thanks!

[DianeC958]

Yes, as long as the amount of the loan did not exceed the balance due on the original loan. If you just refinanced the balance due on the original loan you can deduct the interest paid even if it exceeds the $750,000 limit.

Link to Publication 936 Home Mortgage Interest Deduction

Page 10 is about Grandfathered debt.

[caz1]

@DianeC958 

My original loan was in 2016 for $1.17 million for 30 years.  I'm refinancing now in 2020, to lower my rate on a new 30 year mortgage.  My principal at time of refinance is $1.01 million.  I'm borrowing an additional $4k for closing costs.  My understanding from is:

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?

[DianeC958]

Yes, you are correct that you can deduct the interest on the $1 million.  When you refinance your loan you are capped at the amount of interest you can deduct to the principal balance on the loan when you refinanced it.

For example if your principal balance due at the time of refinance was $950,000 and then your refinanced and increased the loan to $1 million you can only deduct the amount of interest for the $950,000.

Deducting Mortgage Interest FAQs

[CA_user_66]

I had origingally purchased my residence in 2009, in 2015 I refinanced for $965K, so that would qualify for the $1M ceiling.  In 2019 the remaining prncipal was $850K and I refinanced for $1.03M with the full cash out going to improvements.  

1. The Pub 936 description of refinance states that "Any additional debt not used to buy, build, or substantially improve a qualified home isn't home acquisition debt." But since the additional debt is used to substantially improve the home, I should still be able to get credit for interest on up to debt of $1M for the refinanced loan?

2.  The new mortgage form 1098 has both Loan origination date and Mortgage acquisition date in 2019, is that a problem since it is a refinance?  I am not getting the loan interest from this new refinance loan showing up on "Ded Home Mort" form, but it is included in Schedule A line 8a.  Do I delete the home loan interest entry and try again, or edit the loan origination dates in the step by step, or ignore the "Ded Home Mort" form?