Ross is single. He purchased a new main home in March of 2017 for $900,000. Ross will be itemizing his deductions. On what portion of the acquisition debt will interest be deductible on his 2023 tax return?

Answer 1

To determine the portion of the acquisition debt for which Ross can deduct interest on his 2023 tax return, we need to consider the rules governing mortgage interest deductions under current tax law.

1. Acquisition Debt Limits: According to the Tax Cuts and Jobs Act (TCJA), which took effect in December 2017, interest on acquisition debt is deductible on up to $750,000 of mortgage debt for homes purchased after December 15, 2017. However, since Ross purchased his home in March 2017, he is subject to the previous limit of $1 million for acquisition debt as it applies to his mortgage.

2. Home Purchase and Debt: Since Ross purchased his home for $900,000, the acquisition debt incurred is within the old limit of $1 million. Therefore, the full amount of his acquisition debt is $900,000.

3. Interest Deduction: As long as Ross uses the mortgage to buy, build, or substantially improve his primary residence, the interest on the entire amount of the mortgage up to $900,000 can be deducted on his 2023 tax return.

In summary, since Ross purchased his home for $900,000 before the new limits took effect, he can deduct interest on the entire $900,000 acquisition debt on his 2023 tax return.