NEW YORK (MainStreet) – Most of us are aware that mortgage interest on a personal residence - interest on debt secured by the residence - can be deducted on Schedule A. But did you know that, unlike real estate tax, you can only deduct interest on two properties at a time?
If you own a personal residence in New Jersey and two separate vacation properties, one in Florida and one in the Pocono Mountains, for example, and all three properties have a mortgage, you can only deduct the mortgage interest on two of the properties.
And did you know that there are two kinds of deductible mortgage interest?
1) Acquisition debt is debt acquired after Oct. 13, 1987 to buy, build or substantially improve the property. A “substantial improvement” is one that adds value to the home, prolongs the home’s useful life, or adapts the home to new uses. You can deduct in full the interest on up to $1 million in acquisition debt ($500,000 if you're married and filing separately).
2) Home equity debt is debt secured by property that is not used to buy, build or substantially improve the property. There is no restriction or limitation on what the money can be used for. You can use home equity borrowings to buy a car, pay for college or a wedding, or to pay down credit card balances. You are only allowed to deduct interest on up to $100,000 of home equity debt ($50,000 if filing separate).
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