Hello. I'm confused about how the mortgage interest deduction limit in the 2017 tax law works. I think my accountant might have handled this incorrectly, but I'm getting conflicting information from several different sources, so I decided I ought to ask here.
Here's the timeline of events:
- In 2015 I purchased a home in California for
~$1.25Mwith a mortgage loan principal just north of$1M. - In 2016 I refinanced to get a lower interest rate. I didn't borrow additional cash beyond what I already owed. I had an accountant prepare my 2016 returns.
- Fast forward to 2021. I refinanced again to get an even lower interest rate. I didn't borrow additional cash this time either. I had the same accountant prepare my 2021 returns.
- For 2022 I had the same accountant prepare my returns again. On my Deductible Home Mortgage Interest Worksheet, he filled in the info for my loan in the section titled "Home Debt Originating after December 15, 2017", with my average loan balance for 2022 being
~$880K. This caused him to compute that~$3Kof the interest that I paid in 2022 was not deductible. - For 2023 I had the same accountant prepare my returns yet again. He followed the same steps as last time, and he again computed that
~$3Kof the interest that I paid in the year was not deductible. - For 2024 I prepared my returns myself using FreeTaxUSA. I answered all of the questions correctly, one of which was something like, "In what year did you buy your home?" (with the answer being "2015"). FreeTaxUSA didn't even fill out the Deductible Home Mortgage Interest Worksheet, and instead computed that all of the interest that I paid in 2024 was deductible.
So there's clearly a significant difference here:
– My accountant treated my 2021 mortgage refinance as "Home Debt Originating after December 15, 2017".
– FreeTaxUSA did not treat it as such.
Based on my cursory reading of various sources on the internet, because I didn't borrow additional cash, my mortgage refinance should have been treated as debt that originated in 2015. However, a member of my extended family who's an accountant told me that it's actually correct to treat the originating date of the current mortgage as the originating date of the debt, even if that mortgage was a refinance.
So what's the right answer?
Did my accountant compute my mortgage interest deduction correctly or not?
byu/OpiesRevenge intax
Posted by OpiesRevenge
2 Comments
Have you thoroughly read publication 936, and in particular filled out the worksheet on page 11?
Your original guy was wrong.
From 26 US 163
“(ii)Treatment of refinancings of indebtedness
(I)In general
In the case of any indebtedness which is incurred to refinance indebtedness, such refinanced indebtedness shall be treated for purposes of clause (i)(III) as incurred on the date that the original indebtedness was incurred to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.”
Unfortunately the 1098 wasnt updated, and doesnt relay when the original mortage date was, so in box 3 itll show the refinance date, and the actual original mortgage date is lost.
Your accountant should have asked for the refinance documents and adjusted out the refinance costs if they were rolled into the loan, but it should have been subject to the million limitation not the 750k.
You can still amend 3 years back to claim the additional interest. Your accountant would probably be willing to do it at no charge, depending. I know I would for my client if i missed this.