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Gaming the Mortgage Interest Deduction Under the New Tax Law

The rise in the standard deduction means far fewer people will be deducting mortgage interest.

Note: The editors of Kiplinger's Personal Finance magazine and the Kiplinger Tax Letter are answering questions about the new tax law from subscribers to our free Kiplinger Today daily email. See other reader Q&As about the new tax law, or submit your own question.

Question: My wife and I owe about $250,000 on our home mortgage, the interest on which we have always deducted along with our other itemized deductions. Now that Congress has doubled the standard deduction, though, we’ll stop itemizing and lose the benefit of the mortgage interest deduction.

We also own an apartment building free-and-clear and are thinking of borrowing $250,000 against it, and using the money to retire the home mortgage. Then, we could deduct the interest on the apartment loan to offset our rental income. Will that work?

Answer: Nice try, but ... The deductibility of interest turns on the use of the borrowed money, not the security for the loan. While interest on money borrowed to buy or improve a rental property can be deducted against rental income, money used for a personal purpose, such as paying off a home mortgage, is nondeductible.

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