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I have a jumbo mortgage and an open home equity line of credit. I will be using my home equity line to pay for my son’s college, and it will put my combined mortgage/equity line balance over $1 million. How does the $1 million cap...
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"I have a jumbo mortgage and an open home equity line of credit. I will be using my home equity line to pay for my son’s college, and it will put my combined mortgage/equity line balance over $1 million. How does the $1 million cap work on deducting mortgage interest?"

Interest on up to $1 million borrowed through loans or credit lines to buy, build or improve a first or second home can be written off as an itemized deduction on Form 1040, Schedule A. That’s if you’re married and file jointly; if you’re married and file separately, the limit is cut in half. You can deduct interest on an additional $100,000, or $50,000 if you’re married and file separately, borrowed through a credit line that’s backed by your first or second home but that’s used for other purposes – college expenses, for instance. It would seem, therefore, that most people could deduct interest on debt of up to $1.1 million, but it’s not that simple. Say you owe $800,000 on your home and, because it has risen substantially in value, you’re able to borrow $300,000 more against it to send your son to college. That equals $1.1 million, but the Internal Revenue Service will only let you deduct interest on $900,000 of it – the $800,000 mortgage and $100,000 of the money borrowed against the credit line whose purpose is not related to buying, building or improving your home. On the other hand, say you’ve got a $2 million mortgage. The cap allows you to deduct interest on $1 million of it, but there’s that extra debt, up to $100,000, on the credit line on which you can deduct interest. So the cap rules could make your situation somewhat better or worse than you were expecting.

-Conrad de Aenlle



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