Charlie Munger explains the mortgage interest deduction cap: only interest on the first $750,000 of principal is deductible. He walks through a $2M house with a $1.5M loan, then notes the 2017 tax law expires in 2026, when limits revert to 2016 levels unless Congress acts.
$750,000
House price: $2,000,000; loan: $1,500,000 (only interest on first $750,000 deductible).
2026
If you have a mortgage of more than $750,000, you can only itemize your interest deduction up to $750,000 of interest that you have. So what does this mean? This means that if you were going to buy a house for $2 million and you have a loan of 1 million 5, then only the first $750,000 of your loan could you deduct the interest from your personal income tax rate. The 2017 Jobs act is one of the most impactful tax policies of the last generation. This is starting to step down, back to revert to 2016 levels, and that will be completed in 2026. Renewing this and refreshing. This is something that the administration, current administration, has talked about, the new administration has been talking about, and it's something that we're keeping an eye on because it will impact real estate investors across the board.
