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P. 117
TAX YEAR
2019
Itemized Deductions
Interest Paid
Interest That Is Deductible as Home mortgages include first and second mortgages,
an Itemized Deduction and refinanced mortgages. A loan secured by the tax-
payer’s third home is considered a personal loan, un-
• Home mortgage interest paid that is acquisition debt, less the third home is used exclusively for business
subject to limitations. (such as rental property) or investment purposes (such
• Points and loan origination fees to obtain a mortgage as an inherited house that sits vacant until sold). Debt
or to refinance a mortgage. not secured by the property is personal debt. For ex-
• Mortgage insurance premiums, subject to limitations. ample, interest paid on money borrowed from parents
(Expired after December 31, 2017.) for the down payment to purchase a home is person-
• Investment interest paid, such as margin interest on a al interest, unless the parents record the loan under
brokerage account.
state or local law and the home is collateral for the loan.
Interest That Is Not Deductible as Home Defined
Itemized Deductions A home is defined as any house, condominium, cooper-
ative, mobile home, boat, or similar property with basic
• Interest on home equity debt (debt not used to buy, living accommodations including, sleeping, toilet, and
build, or substantially improve a home). cooking facilities.
• Personal interest, such as credit card interest on non-
business purchases, auto loans on vehicles not used Grandfathered Debt
for business, and mortgage interest on a third home. • Mortgage taken out on or before October 13, 1987.
• Business interest is deductible against business in- • Interest paid on grandfathered debt is fully deduct-
come. Business interest is not deductible as an item- ible regardless of what the funds were used for.
ized deduction even if it is for employee business ex-
penses. Example: Interest on a car loan where an em- Acquisition Debt
ployee uses the vehicle for business is nondeductible • Mortgage taken out after October 13, 1987, to buy,
as personal interest. build, or substantially improve a main or second home.
• Interest on qualified student loans is deductible on • Acquisition debt incurred on or after December
Schedule 1 (Form 1040), Additional Income and Adjust- 15, 2017: Total acquisition debt on main and second
ments to Income, rather than Schedule A (Form 1040). home combined is limited to $750,000 ($375,000 Mar-
• Investment interest on debt used to purchase or carry ried Filing Separately).
tax-exempt investments, such as municipal bonds. • Acquisition debt incurred before December 15,
2017: Total acquisition debt on main and second
home combined is limited to $1 million ($500,000 Mar-
Home Mortgage Interest Paid ried Filing Separately).
Secured Debt • Limit is reduced by any grandfathered debt.
A home mortgage is any loan that is secured by the tax- • Debt over the limit may be considered home equity
payer’s main or second home as collateral for the loan. debt, which is not deductible.
