For many taxpayers, the largest itemized tax deduction is for home mortgage interest.  The Tax Cuts and Jobs Act changed the rules on this deduction, for an eight year period.

Acquisition debt is debt that is used to purchase, build, or substantially improve a primary residence or second home.     By definition, substantial improvement is more than general maintenance of a home.

The deduction applies to acquisition indebtedness secured by a qualified residence.   Acquisition indebtedness includes debt from refinancing acquisition debt, up to the amount and term of the refinanced indebtedness.  In other words, if you have 14 years on an old mortgage with a 180,000 balance, a refinanced loan is considered acquisition indebtedness for the remaining 14 year term and $180,000 balance.

Old law allowed for a mortgage interest deduction on up to $1,000,000 of acquisition debt ($500,000 for married filing separately).   Under new law, effective tax years 2018 to 2015, acquisition indebtedness is reduced to $750,000 ($375,000 for married filing separately).

There is a special exception to the new law, which generally allows the application of old law for debt up to $1,000,000 if the mortgage is refinanced, for the term of the original loan.

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