Taxes & Home Ownership: What Interest Can You Deduct?

As you think about your tax strategy, it’s important to be updated on what type of interest you can or can’t deduct when it comes to your home or a line of credit.

Interest Deduction Limits

The current limits in place for how much home mortgage limits you can deduct will revert back to previous limits after 2025. Here’s a summary of current deduction limits.

• Acquisition indebtedness is debt incurred when acquiring, constructing or substantially improving a qualified residence. This amount is used as one factor in determining tax liability for passive income on investment properties. It also relates to tax deductions, such as mortgage interest paid on a loan, for the acquisition of a primary residence.
  • You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations of $1 million ($500,000 if married filing separately) apply if you are deducting mortgage interest from indebtedness incurred before Dec. 16, 2017.
  • That means a taxpayer who 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 purchased the residence before April 1, 2018, is considered to have incurred acquisition indebtedness prior to Dec. 15, 2017, and indebtedness is grandfathered under the older $1 million limit.

• Home equity indebtedness is any debt other than acquisition indebtedness that is secured by the taxpayer’s residence. No matter when the indebtedness was incurred, you can no longer deduct the interest from a loan secured by your home to the extent the loan proceeds weren’t used to buy, build, or substantially improve your home. However, if a home equity loan is used to substantially improve a qualified residence or acquire a second home, it may still be deductible.

The above rules apply to tax years 2018 through 2025.

SALT Deductions

Keep in mind, though, that some of the items you may have deducted prior to 2017, currently have monetary limits or are no longer able to be deducted. For example, state and local income taxes (SALT) are limited to $10,000, and you can only claim this deduction if you itemize your tax return. The limit also applies to tax years 2018 to 2025.

Talk With Your Advisor

Your wealth advisor at Mariner Wealth Advisors along with our tax professionals can discuss these limitations further and how they apply to your specific tax situation with the goal of minimizing your tax burden.

Sources:

IRS Publication 936.

“IRS Explains Treatment of State & Local Tax Refunds.”

This article is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services and general economic market conditions. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training. MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.