2018 Mortgage Interest Deduction

Technical topics regarding tax preparation.
#1
Mctoe  
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Hi,
After reviewing various websites can't seem to find an answer to this question: Assume a person has a grandfathered mortgage in the amount of $200,000 on their main home and now wants to get a mortgage of $750,000 for a second home. Under TCJA, mortgage interest is limited to $750,000. Will taxpayer be able to deduct the mortgage interest on both the $200,000 and the $750,000 in 2018? Or is the limit $750,000 regardless of whether one mortgage is grandfathered?
Thank you.
 

#2
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The Act language:

"The conference agreement provides that, in the case of taxable years beginning after
December 31, 2017, and beginning before January 1, 2026, a taxpayer may treat no more than
$750,000 as acquisition indebtedness ($375,000 in the case of married taxpayers filing
separately). In the case of acquisition indebtedness incurred before December 15, 2017 this
limitation is $1,000,000 ($500,000 in the case of married taxpayers filing separately)."

IRC Sec. 163 makes the situation very clear--post December 15, 2017 acquisition indebtedness is REDUCED by the acquisition indebtedness grandfathered in:

(F) Special rules for taxable years 2018 through 2025
(i) In generalIn the case of taxable years beginning after December 31, 2017, and before January 1, 2026—
(I) Disallowance of home equity indebtedness interest
Subparagraph (A)(ii) shall not apply.

(II) Limitation on acquisition indebtedness
Subparagraph (B)(ii) shall be applied by substituting “$750,000 ($375,000” for “$1,000,000 ($500,000”.

(III) Treatment of indebtedness incurred on or before december 15, 2017
Subclause (II) shall not apply to any indebtedness incurred on or before December 15, 2017, and, in applying such subclause to any indebtedness incurred after such date, the limitation under such subclause shall be reduced (but not below zero) by the amount of any indebtedness incurred on or before December 15, 2017, which is treated as acquisition indebtedness for purposes of this subsection for the taxable year.


There's the authority, and I am interpreting it the same way I have seen others interpret it even though I believe the language is pretty clear. $200k grandfathered in, $550k available post 12/15/17. It is an "or" situation...you either have up to $1 mil grandfathered in, or you are capped at post 12/15/17 $750k. If you have any grandfathered indebtedness, it reduces the allowable additional indebtedness under TCJA by amount grandfathered in.
Last edited by CornerstoneCPA on 21-Aug-2018 9:09am, edited 1 time in total.
 

#3
Mctoe  
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Thank you CornerstoneCPA for the response.
 

#4
Doug M  
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thank you for the correction
Last edited by Doug M on 21-Aug-2018 3:49pm, edited 1 time in total.
 

#5
Mctoe  
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23
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17-Sep-2014 5:46am
Location:
NY
From what I have read, mortgage interest on a second home still applies.
 


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