New Ruling Increases Limit on Home Mortgage Interest Deduction

Under a new ruling, you may now deduct interest on up to $1.1 million of debt on a personal residence. This adds $100,000 to the previous limit which was $1 million of acquisition debt.  The loan proceeds must be used to "acquire, construct of substantially improve" a qualified residence.

In the example case cited by the IRS, the taxpayers had a loan of $1.2 million which had been used to purchase their principal residence.   Interest on the first $1 million is deductible mortgage interest and interest on the next $100,000 is deductible as home equity interest.   Interest on the remaining $100,000 of debt used to acquire the home remains non-deductible.



Rev. Rul. 2010-25 is attached.

http://www.irs.gov/pub/irs-drop/rr-2010-25.pdf