How the IRS Mortgage Interest Deduction Limits Work by Loan Date

If your home acquisition loan was secured after December 15, 2017 and is bigger than $750,000, the IRS limits how much of that debt counts toward your mortgage interest deduction, though older loans secured after October 13, 1987 and before December 16, 2017 are grandfathered into a higher $1 million limit. This walks through how that limit plays out using an $800,000 loan as an example.

The basic rule behind the limit

IRS Publication 936 sets the ceiling on how much home acquisition debt you can use as the basis for a mortgage interest deduction. For debt secured after December 15, 2017, that limit is $750,000, or $375,000 if you are married and filing separately. Older acquisition debt secured after October 13, 1987 and before December 16, 2017 is grandfathered into a higher $1 million limit, or $500,000 if married filing separately, rather than the current $750,000 cap.

Why older loans play by different rules

Not every mortgage is measured against the current cap. If your acquisition debt was secured after October 13, 1987 and before December 16, 2017, it is grandfathered into a higher limit: $1 million, or $500,000 if married filing separately. That higher limit can also apply to certain acquisition debt from a written binding contract entered into before December 16, 2017, if the purchase closed before April 1, 2018. The distinction depends entirely on when the debt was secured, not on when you happen to be filing your taxes.

Filing status changes the number that applies to you

Married taxpayers who file separately do not each get the full $750,000 limit — the cap is split in half, to $375,000 per spouse, for acquisition debt secured after December 15, 2017. This applies specifically to acquisition debt secured after that date; the older grandfathered loans have their own halved figure of $500,000 for married filing separately taxpayers. If you and your spouse are weighing whether to file jointly or separately, this halved limit is one more factor that can shrink your deductible interest compared to filing jointly.

Worked example: an $800,000 loan against the $750,000 limit

Picture a single filer with an $800,000 acquisition loan secured after December 15, 2017, which puts them squarely under the current $750,000 cap rather than the older $1 million grandfathered limit. Assume, for illustration only, that this hypothetical borrower paid $40,000 in mortgage interest over the year, roughly consistent with a 5% rate on that balance. Because only $750,000 of the $800,000 balance counts as deductible acquisition debt, the borrower cannot deduct the full $40,000. Applying the $750,000 limit as a share of the $800,000 balance to the $40,000 paid, as shown in the calculation below, yields $37,500 as the deductible amount, leaving $2,500 of interest that is not deductible under this hypothetical.

• debt limit: 750000
• loan balance: 800000
• total interest paid: 40000
• Formula: (750000/800000)*40000
• Result: 37500

How the $750,000 limit applies to interest on an $800,000 loan.

For illustration only, picture a hypothetical single filer with an $800,000 acquisition loan secured after December 15, 2017, subject to the current $750,000 limit rather than the older $1 million grandfathered limit, and assume this borrower paid $40,000 in mortgage interest during the year, roughly consistent with a 5% rate.

Source: www.irs.gov

Which limit applies to your loan

Loan secured	Single or married filing jointly limit	Married filing separately limit
After Oct. 13, 1987 and before Dec. 16, 2017 (grandfathered)	$1,000,000	$500,000
After Dec. 15, 2017 (current rule)	$750,000	$375,000

Debt limits by when the loan was secured and filing status.

Working out your own deductible share

1. Find the acquisition date of your mortgage debt to confirm whether the $750,000/$375,000 limit or the grandfathered $1,000,000/$500,000 limit applies to you.
2. Identify your filing status, since married filing separately taxpayers use half of the joint or single limit under both the current and grandfathered rules.
3. Total the mortgage interest you actually paid during the year, as shown on your loan statement.
4. Compare your outstanding loan balance to the applicable debt limit for your acquisition date and filing status to see whether your deduction will be limited at all.

Key takeaways

• The current $750,000 acquisition debt limit applies to loans secured after December 15, 2017, and drops to $375,000 for married taxpayers filing separately.
• Loans secured after October 13, 1987 and before December 16, 2017 are grandfathered into a higher $1 million limit, or $500,000 for married filing separately, and this grandfathered treatment can also extend to certain purchases closing before April 1, 2018 under a binding-contract exception.
• The $800,000 loan example above assumed $40,000 in annual interest on a loan that exceeds the current $750,000 limit.
• Which limit applies to you depends on when the debt was secured, not on when you file your return.

Frequently asked questions

Does the $750,000 limit apply to my total mortgage balance or just the interest?

The limit applies to the loan balance, not the interest amount itself — it sets how much acquisition debt counts when figuring the deduction, with the current cap at $750,000 (or $375,000 if married filing separately) for debt secured after December 15, 2017.

Why is the married filing separately limit exactly half of the joint limit?

The IRS sets the married filing separately figure at half of the joint or single filer limit under both the current and grandfathered rules, so a married taxpayer filing separately should use $375,000 (current) or $500,000 (grandfathered) rather than the full $750,000 or $1,000,000 figure when running the pro-rata calculation.

The pro-rata approach shown here — dividing the applicable debt limit by your loan balance, then applying that ratio to interest paid — is worth recalculating whenever your loan balance or filing status changes, since the limit itself depends on both: the current $750,000 cap drops to $375,000 for married taxpayers filing separately, while older acquisition debt secured after October 13, 1987 and before December 16, 2017 is grandfathered into a $1 million ($500,000 married filing separately) limit instead.

Sources

• www.irs.gov