The Mortgage Interest Deduction in 2019/2020 - YouTube

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 of 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 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 gonna be itemizing who you got to understand the mortgage interest deduction

If you're taking the new and larger and greater standard deduction, you don't need to worry about this

And so if you're single you're looking at about twelve thousand four hundred twelve thousand six hundred as it gets adjusted and years to come

If you're married twenty four thousand four hundred six hundred yada

That's when you take the standard deduction. If you've got mortgage interest right off some state taxes some charitable donations

You're gonna 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 that it was all any mortgage interest on these homes

And then you had a kicker of up to an extra hundred thousand dollars of HELOC

mortgage that you could write the interest off as well in these second loans and second mortgages as they're often referred to or

He locks you could throw in paying off some debt. Go take a trip around the world. You could have all sorts of

Consolidation on these loans and you had basically up to a million one hundred

Thousand dollars worth of mortgages and the interest there on 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 seven hundred and fifty thousand of combined

Mortgages on your first or second home and there is no extra

$100,000 of he'd 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 gonna want to be aware of

Okay, twist number one and before I get there it reminds me. Make sure you get down into 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

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Twist. Number one twist number one is HELOC interest is okay

under this

$750,000 so you can still go out and get a home equity line of credit moving forward as long as the money's 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 used 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 the interest of any type whether before the new law

After the new law you could not write off HELOC interest if 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 gonna 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 ooh well have that

$200,000 of HELOC debt a hundred of it was to improve the home a hundred of it was debt

Consolidation so you can only write off the interest on half of that loan

So you're gonna 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 if you had a debt on

Your home purchase for at 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 $1,000,000 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 and the interest thereon as a write-off

If you incurred that mortgage before

January 1st, 2018

But moving forward is still it's only that seven hundred and fifty thousand dollars 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 a 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 reef

I 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 refining 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

Now that's a little tricky at skin and 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

This 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 could rock it and know exactly what to do on that Excel spreadsheet. So

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