Question about mortgage interest deduction cap

[hkc1312]

we are planning to take out a HELOC on our home this year to do a significant remodel. My question is if the combined total of what we take out in our HELOC plus our original mortgage is over $1 million at any point in the year, does that mean we cannot deduct any of the interest for tax year 2018 or only interest on up to the $1 million of combined mortgage and equity credit and then we couldn't deduct any more interest? If the latter, will this show on the 1098 or how would we calculate what interest we can deduct? This would be for acquisition debt. Thanks

[IsabellaG]

For home mortgage debt secured after October 13, 1987, and prior to December 16, 2017, the limit is $1 million. That debt is not affected by the new $750,000 limit for debt secured after December 15, 2017.

But for home acquisition debt secured after 12/15/2017 (in this case, your HELOC),  the Qualified Loan Limit is $750,000, and applies to the combined mortgages on your main home and second home. So you wouldn't be able to deduct any of the interest on your HELOC if the combined average balance on both your mortgage and your HELOC exceeds $750,000, even though you can still deduct the interest on your original mortgage on a balance up to $1 million. 

See the worksheet in IRS Publication 936, Page 11, to work this out. The limitation won't show up on your 1098 for the HELOC.

[hkc1312]

Thanks for your prompt reply. I looked at the 936 worksheet and to make sure that I understand it correctly, we have about $450k of mortgage pre 2017 but after 1987. So we could deduct up to $300k of HELOC debt (totaling $750K) for 2018, correct? And based on the work sheet, if we took out more than $300k with our HELOC there would be a percentage calculation to figure out how much we could deduct. Please correct me if I am wrong. And one last question, the size of our line of credit doesn't matter, but the actual amount that we borrow against that line of credit.

Thanks again

[IsabellaG]

Yes, you understand this correctly. And yes, the size of your line of credit doesn't matter; just the amount of home equity debt.

[jhnydgrsly]

While on this topic, it appears there is an issue with TT itself on this form as it will ask for principal amounts but, as one instance, a large lender had transferred all its loans in 2018 . the problem is those borrowers will get TWO 1098s , one for first portion of year one from the 'first' lender and a second 1098 for second lender and last portion of year. Issue is if you answer TT question for tht form and give principal amount as asked for each 1098 it those amounts sum over $1 mil then TT will not give you the deduction thinking you have exceeded the max loan amount allowed. This is flawed software logic as apparently it is not properly taking into account the scenario I describe: receiving two (or more) 1098s for a tax year because the loan was assigned to a new servicer. Yikes imo if TT users simply answer the questions they are prompted to answer regarding beg or ending principal amount of loan then they could be declined their deduction which is incorrect. This need to be fixed ASAP imo.  disclaimer: none of this is tax advice nor can be used as tax advice I don't hold myself out to be an expert all users should see their own tax consultant to determine their individual tax situation.   

[s3trios64]

I have been playing around with TT and the Schedule A mortgage interest deductions, something is still really broken with the mortgage interest deductions.  I have (3) 1098 from 3 banks that total up to some $40,000 in mortgage interest and even with the SALT limit of 10k, TT will still use the 24k standard deduction and refuse to itemize.  Going back and changing the values of the mortgage interest to absurd numbers like $150k to $300k does absolutely nothing, TT still refuses to accept those numbers and this is with the most current form updates from 2/1.  I've tried entering the exact same thing in TaxAct online and got the itemized amount instead of the standard 24k deduction.