$1.1 million mortgage interest deduction post new tax law

[Michael Gibek]

Before the new tax law, the interest on up to $1 million on a mortgage secured by a primary residence could be deducted on scheduled A. Likewise, the interest on HELOC up to $100k could be deducted in the same way. It was my understanding that under the new tax law, the cap on all primary residence mortgages subsequent to December 15, 2017 is now $750k and the HELOC deduction is completely eliminated. Under the new law, a transition rule grandfathers in the $1million mortgage deductions on any mortgages that closed prior to December 15, 2017 but there is no similar rule for HELOCs. As such, I was under the impression that the $100k HELOC tax deduction was completely scraped pre and post Dec 15, 2017.

What many didn't know was that pre- the new tax law, the mortgage interest deduction limit was actually $1.1 million under Rev. Rul. 2010-25 (). That is, all the mortgage interest on a primary residence secured by one mortgage up to $1.1 million (no HELOC) was deductible on schedule A. My reading of the advisory opinion is that it appears to turn on section 163 of the IRC which deals with the $100k HELOC deduction to justify going over the $1million cap up to $1.1millino.

Because the HELOC deduction was scraped by the new tax law, I thought the limit on pre-new tax law jumbo mortgages was effectively reduced from $1.1M to $1M. However, some new information from the IRS suggests that may not be the case. IRS newswire from February 21, 2018 (IR-2018-32) notes: "[t]he Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan." ().

This seems to suggest that a piggy back HELOC is still tax deductible; and, by extension, the 100k in excess to the $1M on grandfathered mortgages is still tax deductible.

Any tax professional out there care to weigh in? In short, can I still deduct the interest up to $1.1M on my $1.3M primary residence mortgage? Or am I now capped to the grandfathered $1M?