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mhyale
New Member

Under the new tax law in 2018. Is the balance limit $1M or $750K if one of the two mortgages is closed prior to 2017.

I currently have 2 mortgages (primary & secondary home both closed before 2017) with balance of $450K on primary home and $400K on secondary home. If I sell my primary home now and get a $500K mortgage to purchase a new house as primary home. Can I deduct a total of $900K instead of $750K under new Trump tax law?

My rational is that I can deduct the full $500K for my new primary home in 2018 because it is under $750K, and I can deduct the full $400K on secondary home because it was closed prior to 2017.

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TaxGuyBill
Level 9

Under the new tax law in 2018. Is the balance limit $1M or $750K if one of the two mortgages is closed prior to 2017.

Sorry, you will be limited to $750,000.  The new law says at Section 163(h)(3)(F)(III) that the limit for your new mortgage (post-December 15th, 2017 debt) is $750,000 MINUS the $400,000 (pre-December 15th, 2017 debt).

https://www.law.cornell.edu/uscode/text/26/163#h_3_F



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5 Replies
TaxGuyBill
Level 9

Under the new tax law in 2018. Is the balance limit $1M or $750K if one of the two mortgages is closed prior to 2017.

Sorry, you will be limited to $750,000.  The new law says at Section 163(h)(3)(F)(III) that the limit for your new mortgage (post-December 15th, 2017 debt) is $750,000 MINUS the $400,000 (pre-December 15th, 2017 debt).

https://www.law.cornell.edu/uscode/text/26/163#h_3_F



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rjs
Level 15
Level 15

Under the new tax law in 2018. Is the balance limit $1M or $750K if one of the two mortgages is closed prior to 2017.

The following is from the IRS instructions for Schedule A for 2018 (page A-8).

"Limit on loans taken out after December 15, 2017. For qualifying debt taken out after December 15, 2017, you can only deduct home mortgage interest on up to $750,000 ($375,000 if you are married filing separately) of that debt. If you also have qualifying debt subject to the $1,000,000 limitation discussed under Limit on loans taken out on or before December 15, 2017, earlier, the $750,000 limit for debt taken out on or after December 15, 2017, is reduced by the amount of your qualifying debt subject to the $1,000,000 limit."
timotheos_smith
New Member

Under the new tax law in 2018. Is the balance limit $1M or $750K if one of the two mortgages is closed prior to 2017.

I have two mortgages, one purchased prior to Dec 2017, and another purchased last May.  In the, "Do any of these situations apply to you?" section, I answer no because in my case, each loan is below the limit of $1M and $750K respectively.  Yet TurboTax doesn't seem to know about subtracting the prior debt from the $750K limit and incorrectly (I think) allows me to deduct the interest from both mortgages fully.  I've checked the Schedule A line item and all the interest is there.
Critter
Level 15

Under the new tax law in 2018. Is the balance limit $1M or $750K if one of the two mortgages is closed prior to 2017.

  • If you itemize, you can deduct the interest on up to $750,000 in mortgage debt, if the loan was used to buy or improve a first or second home.
  • Mortgages and refinances taken out before December 16, 2017 are grandfathered in at the $1 million debt limit.
  • You can still deduct the interest on a new or existing home equity loan or line of credit, but only if it’s used to buy, build, or substantially improve your home and your total mortgage debt doesn’t exceed $750,000.
Anonymous
Not applicable

Under the new tax law in 2018. Is the balance limit $1M or $750K if one of the two mortgages is closed prior to 2017.

would a better way to put it in this case be that the interest on the old mortgages (pre 2017) will be fully deductible.   if he buys a new house with a $500K mortgage before he sells and pays off the mortgage on his old primary mortgage, none of the interest would be deductible since the balances on the old mortgage exceed $750K.   when he sells and pays off the mortgage on the old primary interest on $350k of the $500K new mortgage would be deductible. 


in all probability, the calculations will be similar as to those under the old law just with new limits.   so say you pay off the old primary on October 31,2018.  let's assume  for November the average balance on the mortgage on your second home is now down to $395K  interest on $355K of  new mortgage would be deductible.   

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