The Mortgage Interest Deduction in 2019/2020

Hey, Mark Kohler here and I want to talk about the new mortgage interest deduction. And I'm not talking about mortgage interest on your rental property. Those are still fully deductible no matter how much the mortgage is or the value of the building or the mortgage itself. You're good. I'm talking about the mortgage interest deduction on your personal residence. So lots of new rules here, some grandfather provisions. You want to know the basics on this so that you can get the biggest write off on your tax return. Let's break it down. Now. The best way to understand this is to understand the old rule before the Tax Cuts and Jobs act. So pretty much 2017 tax year and back then when we talk about 2018 until approximately 2026, we can talk about the new rule. That way it's easier to make sense of this you and file your current tax return moving forward. Okay, couple things before we dive into this. First, we're talking about itemized deductions. If you're going to be itemizing, you got to understand the mortgage interest deduction. If you're taking the new and larger and greater standard deduction, you don't even need to worry about this. And so if you're single, you're looking at about 12,400, 12,600 as it gets adjusted in years to come. If you're married to 24,400, 600, yadda yadda, that's when you take the standard deduction. If you've got mortgage interest write offs, some state taxes, some charitable donations, you're going to be itemizing. That's why you want to know this. Next. We want to understand the differences between the old rule and the new rule. So it's easier and there's some provisions that carry forward. So let's talk about 2017 and back. So in 2017 and earlier, the rule was you could write off the mortgage interest on up to a million dollars worth of home mortgages on your first or second home vacation home. It could be a first or a second loan, it could be a heloc. It was all any mortgage interest on these homes. And then you had a kicker of up to an extra $100,000 of HELOC mortgage that you could write the interest off as well. And these second loans and second mortgages, as they're often referred to, or HELOCs, you could throw in paying off some debt, go take a trip around the world. You could have all sorts of debt consolidation on these loans and you had basically up to $1,100,000 worth of mortgages and the interest thereon. That was the write off. Now let's talk about the new law which is 2018 until 2026. Now under this new provision, you can only write off the mortgage interest on up to 6, 750,000 of combined mortgages on your first or second home. And there is no extra $100,000 of heat lock loan interest that you can throw on top of it. There's also some caveats on the type of debt. It has to be for the purchase of the home or improvements to the home. Now you may say, okay Mark, you're done. That's easy. I got it. Now I want to go through six twists, if you will, on this new law that you're going to want to be aware of. Okay, twist number one, and before I get there, it reminds me, make sure you get down in the description. I've got a blog article on this topic that links over to my blog and I do videos and articles every week where you can read this and in writing it might make a little more sense. This is a big topic. And also make sure you subscribe and hit the bell icon because I'm shooting videos every week that are going to save you thousands of dollars throughout the year. This is not just during tax time, so subscribe now. Twist number one. Twist number one is HELOC interest is okay under the $750,000 so you can still go out and get a home equity line of credit moving forward as long as the money is used to improve the home. And if you had an old HELOC before this new law, you can write off the interest on that if it was used to improve the home. And so let's say you have a $500,000 mortgage and a $200,000 HELOC that we use to improve the home and you incurred it before the new law. That's fine. If it was used to improve the home, all of that interest is deductible because it's still under $750,000 of debt. Number two, twist, you cannot write off HELOC interest of any type, whether it was before the new law. After the new law you cannot write off HELOC interest. It's there to consolidate debt. So you're paying off credit card debt traveling around the world, maybe through in a couple auto loans to get a lower interest rate, whatever. You cannot write off the interest on any HELOC debt that is part of that consolidation of personal debt. Now. So you're going to go, oh my gosh, I had an old HELOC before 2018. Part of it was to improve the home and part of it was to consolidate debt. So now you got to do the math and you got to say, oh well, if that $200,000 of HELOC debt, 100 of it was to improve the home, 100 of it was debt consolidation. So you can only write off the interest on half of that loan. So you're going to have to do some math in this process and make sure your accountant, if you're having a tax preparer do this, understand what that loan looked like that you incurred before the new law. Number three, let's talk about that grandfather provision also on the total amount of debt. And if you had a debt on your home purchase for debt, acquisition or improvement that was up to a million dollars, and you incurred that debt before the new law, you're allowed to stay with the $1 million worth of debt. Now you don't get the kicker of that hundred thousand dollars worth of HELOC debt and interest, but you can be grandfathered in and keep the million dollars worth of debt. Debt and the interest thereon is a write off if you incurred that mortgage before January 1, 2018. But moving forward is the it's only that $750,000 of combined debt fourth twist. And I love this one. This is an important one to know. Can you write off the interest to go buy a vacation home? Yes. Second home qualifies for mortgage interest. That could be an RV even. It could even be a boat or a yacht. If you're in that market, because it's got toilet facilities and a bed in it, it counts as a second home so that the interest on that would be a write off as a second home. But if you take out a HELOC or a home equity line of credit on your primary residence to go buy the second home or the rv, it's not a write off. It's got to be a new acquisition debt used to acquire the second home, then that interest is a write off. And that goes for the grandfather provision. So if you bought an RV back in 2015 and you got a new loan to do it, the interest is still a write off on that as long as your combined debt is under 750 grand. And if you're grandfathered in with another loan, you can even get up to the million. But if you took out a home equity line before the new law to buy the rv, that is not a write off because it's a home equity line not used to improve the property that HELOC was against. Number five Twist the refi. I had a phone call about this from a client just a week ago. Let's say you're now under the new law. You've got a million dollars worth of mortgage debt, so you're grandfathered in. You bought a home before 2018 and you've got this bigger debt and you can write off the interest on it. And now you refi the whole million dollars. Can you write off the interest on that? When the new law says it's only 750? The answer is yes, because you're refiing a debt before 2018 that was used to purchase the home or to improve it. So if you refi that whole thing, you can still write off the interest on up to a million dollars. But beware, if the refi has any sort of debt consolidation or you're using some of that refi money to go buy the RV or a second home, that interest on that portion of the refi would not be a write off. That's a little tricky. It's getting in my blog article. Read up on it. Talk to your accountant on that sixth Twist International property. That's right. You can write off the interest on a second home even if it's not in the US and it's a write off again, keeping it under the $750,000 cap. But it has to be debt used to or incurred to acquire the property. You can't again take out a HELOC on your primary home and go buy a property international and write off the interest on that. You got to go get a new debt in that locale to get that second home and then the interest on it is a write off. In summary, little technical, right? It sounds crazy, but you want to know these rules so that you can talk to your accountant intelligently. Or if you're preparing your own tax return, you can rock it and know exactly what to do on that Excel spreadsheet. So continue to learn little tips like this. They'll help you and subscribe below. You're going to love it. It's going to help you get tips throughout the year to help you save taxes and better live the American dream. Hey, thanks for watching. I hope that was impactful and I want to save you even more. First, down below, I've got a link to my weekly newsletter. It's free. I've been doing it for over 12 years. It's got deadlines, tips and articles, videos. You're going to love it. Number two, Please subscribe and click the bell. I shoot a new video every week and throughout the year, I'm going to be giving you tips on ways to make money, save money, and save taxes. And third, please share this on your social media. 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