Refinancing and mortgage interest deductions:

We're getting questions about refinancing and deductions for mortgage interest. Let us refresh you on the rules and more specifically, how interest on refinanced mortgages work.

First the rules: You can deduct mortgage interest on up to $750k of outstanding principal. Meaning that if you have a $1m mortgage, interest is only deductible up to $750k.

There is an exception: If your mortgage was taken out before December 16, 2017, interest is deductible on a mortgage up to $1m. Meaning that if your mortgage was in place before that date, and you had a $1.5M mortgage, interest is deductible up to $1m of principal.

Now for refinancing: If you refinance a mortgage taken out before December 16, 2017, interest on the new refinanced mortgage is only deductible up to $750k of principal. So if you had a $1m mortgage taken out before that date, and refinance today for $1m, interest is now only deductible up to $750k of principal. So you have to crunch some numbers to figure out if the refi is worthwhile: you compare the annual savings on the refinanced payments with the additional taxes you have to pay on the lost interest deduction.

If you refinance a mortgage taken out after that date, the rules are the same: interest is deductible up to $750k of outstanding principal.

Hope this helps. Please let us know if you have questions.