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The Republican Tax Plan: Analysis – Home Mortgage & Equity Interest

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Sandy Botkin

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Sandy is a CPA, Tax Attorney, and former IRS trainer. He has authored many helpful books on the subject of taxes, including 7 Simple Ways to Legally Avoid Paying Taxes ( Click Here ), Lower Your Taxes: Big Time ( Click Here ), and Real Estate Tax Secrets of the Rich ( Click Here ).
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Modification of Home Mortgage and Home Equity Interest Deduction

Prior to the tax cuts law, you could deduct home mortgage interest up to $1,000,000 of debt if used for either the acquisition or improvement of your principal or secondary residence. In addition, you could claim an interest deduction on up to another $100,000 of home equity debt.

New law: For years beginning after Dec. 31, 2017, and before Jan 1, 2026, the deduction for home equity indebtedness is suspended. In addition, the deduction for home mortgage interest is allowed up to $750,000 of debt. However, A taxpayer who has entered into a binding written contract before Dec. 15, 2017 to close on the purchase of a principal residence before Jan. 1, 2018, and who purchases such residence before Apr. 1, 2018, shall be considered to incur acquisition indebtedness prior to Dec. 15, 2017.

Sandy’s hot tip: If you are eligible for a valid home office deduction, you could deduct a portion of the interest as business expenses. Your deduction for interest on debt might NOT be limited to $750,000 of debt to the extent that the home is used for business.

For example, let’s assume that you bought a castle for $48,000,000, paying $8,000,000 as a down payment and borrowing the rest of the $40,000,000. (Admittedly this is an exaggerated example, but it does make my point.) If you use your home for 25% for business, you should be able to deduct the interest on $25% of the debt, which is $10,000,000, regardless of the debt limit. Even better, you can also deduct the interest up to an additional $750,000 of debt in addition to an itemized deduction.

Finally, there is no limit on the amount of interest deduction per se. Thus, if you are paying 18% interest on up to $750,000 of home acquisition debt, you could deduct all of the interest. The limitation is based on the amount of debt and not on the amount of the interest.


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Sandy Botkin

Sandy is a CPA, Tax Attorney, and former IRS trainer. He has authored many helpful books on the subject of taxes, including 7 Simple Ways to Legally Avoid Paying Taxes ( Click Here ), Lower Your Taxes: Big Time ( Click Here ), and Real Estate Tax Secrets of the Rich ( Click Here ).

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