Home Mortgage Interest Deduction

Course: Income Tax Planning
Lesson 8: Arriving at Taxable Income

Student Question:

If a client has a $250k mortgage on a home worth $500k and they refinance to take equity out of their home, say $100k. Then they use that $100k to purchase a vacation home worth $300k (so they now have $450k in mortgage debt), can they deduct interest from both properties since each mortgage is secured by the property? 

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Instructor Response:

That’s a great question Mitchel and a potential CFP Board trick.  The answer is yes.  Home mortgage interest is deductible on the taxpayer’s primary residence and one secondary residence. I note that in your example the total of both mortgages was below the maximum mortgage debt allowed.