The short answer to your question: most people will not see a change in their mortgage interest deduction. Your deduction for interest on home equity loans, however, is toast*.
The new tax law makes some changes to the deductability of home mortgage interest, but the changes apply within the framework of prior law. And, the prior law is automatically reinstated 1/1/26. So, to understand the changes, we need to review prior law.
Prior (pre-2018) Law
As a general matter, personal interest is not deductible.
Qualified residence interest is not treated as personal interest and is allowed as an itemized deduction, subject to limitations.
Qualified residence interest means interest paid or accrued during the taxable year on either acquisition indebtedness or home equity indebtedness. A qualified residence means the taxpayer's principal residence and one other residence of the taxpayer selected to be a qualified residence. A qualified residence can be a house, condominium, cooperative, mobile home, house trailer, or boat.
Acquisition indebtedness is indebtedness that is incurred in acquiring, constructing, or substantially improving a qualified residence of the taxpayer and which secures the residence.
The maximum amount treated as acquisition indebtedness is $1 million ($500,000 in the case of a married person filing a separate return).
Acquisition indebtedness also includes indebtedness from the refinancing of other acquisition indebtedness but only to the extent of the amount (and term) of the refinanced indebtedness. Thus, for example, if the taxpayer incurs $200,000 of acquisition indebtedness to acquire a principal residence and pays down the debt to $150,000, the taxpayer's acquisition indebtedness with respect to the residence cannot thereafter be increased above $150,000 (except by indebtedness incurred to substantially improve the residence).
Home equity indebtedness
Home equity indebtedness is indebtedness (other than acquisition indebtedness) secured by a qualified residence. The amount of home equity indebtedness may not exceed $100,000 ($50,000 in the case of a married individual filing a separate return) and may not exceed the fair market value of the residence reduced by the acquisition indebtedness. Interest on qualifying home equity indebtedness is deductible, regardless of how the proceeds of the indebtedness are used.
How the New Law Changes the Mortgage Deduction
For residences acquired after 12/15/17, acquisition indebtedness is limited to $750,000 ($375,000 for married filing separate). Nothing changes for residences acquired before that.
The deduction for home equity interest is eliminated.
Like many provisions in the new law, these changes are effective 1/1/18 - 12/31/25. After that, we revert back to current law.
* It does not matter so much what the bank calls the loan, it matters how the loan proceeds were used. "Home equity" loan can still qualify as acquisition debt. If you are unsure, talk to professional.
