Understanding the mortgage interest deduction rules is crucial for homeowners looking to maximize their tax benefits in 2025. The Tax Cuts and Jobs Act (TCJA) introduced significant changes to these rules, which are set to expire at the end of 2025 unless extended by Congress. Here’s a breakdown of the current rules for new and old loans.
🏠 New Loans (Post-December 15, 2017)
For mortgages taken out after December 15, 2017, the TCJA limits the amount of mortgage debt eligible for the interest deduction:
- $750,000 for single filers and married couples filing jointly
- $375,000 for married individuals filing separately
These limits apply to the combined total of mortgages on your primary and secondary homes. To qualify for the deduction, the loan must be secured by your home and used to buy, build, or substantially improve the property. Interest on home equity loans or lines of credit is deductible only if the funds are used for these purposes.
Note: These provisions are temporary and will expire at the end of 2025, potentially reverting to previous limits unless extended by new legislation.
🏡 Old Loans (Pre-December 16, 2017)
Mortgages taken out on or before December 15, 2017, are subject to more favorable deduction limits:
- $1 million for single filers and married couples filing jointly
- $500,000 for married individuals filing separately
Additionally, interest on up to $100,000 of home equity debt was deductible regardless of how the loan proceeds were used. However, this provision was eliminated under the TCJA, and interest on home equity loans is no longer deductible unless the funds are used to buy, build, or substantially improve the home.
Note: These more favorable limits will expire at the end of 2025 unless extended by new legislation.
🔁 Refinancing Implications
Refinancing your mortgage can impact your deduction limits:
- If you refinance a mortgage that was subject to the $1 million/$500,000 limit, the new loan is treated as acquisition debt up to the amount of the original loan balance. Any amount exceeding the original balance may be considered home equity debt, subject to the $750,000/$375,000 limit and the new rules for home equity debt.
- If you refinance a mortgage that was subject to the $750,000/$375,000 limit, the new loan is treated as acquisition debt up to the amount of the original loan balance. Any amount exceeding the original balance may be considered home equity debt, subject to the same limits and rules.
It’s important to note that refinancing does not reset your deduction limits; the original loan’s terms and balances continue to apply.
📅 Looking Ahead: Post-2025 Changes
As mentioned, the current mortgage interest deduction rules are set to expire at the end of 2025. If no new legislation is enacted, the following changes are expected:
- The deduction limit for new loans will revert to $1 million for single filers and married couples filing jointly, and $500,000 for married individuals filing separately.
- The deduction for interest on home equity loans will be restored, regardless of how the loan proceeds are used.
It’s essential to stay informed about potential legislative changes that could affect these rules. Consult with a tax professional to understand how these changes may impact your specific situation.
✅ Key Takeaways
- New loans (post-December 15, 2017) are subject to a $750,000/$375,000 deduction limit.
- Old loans (pre-December 16, 2017) are subject to a $1 million/$500,000 deduction limit.
- Refinancing does not reset your deduction limits; the original loan’s terms and balances continue to apply.
- The current rules are set to expire at the end of 2025 unless extended by new legislation.
For more detailed information, refer to IRS Publication 936: Home Mortgage Interest Deduction.
