Do I qualify for the new mortgage interest deduction if I have a binding contract exception?

Do I qualify for the new mortgage interest deduction if I have a binding contract exception?

by Rosemary Lamaestra, CPA, CFE | Jan 17, 2018

Would I qualify for the mortgage interest deduction binding contract exception under the new tax bill, Tax Cuts and Jobs Act? It states that the exception applies to a taxpayer who entered into a binding, written contract before Dec. 15, 2017, to close on a principal residence before Jan. 1, 2018, and who purchases such residence before April 1, 2018. I would like to understand what the difference is between the two dates of Jan. 1, 2018, and April 1, 2018. In my case, I entered into a written, binding agreement on Oct. 23, 2017 (before Dec. 15, 2017) to close on Dec. 27, 2017 (before Jan. 1, 2018); but due to unforeseen delays, my closing was moved to Jan. 5, 2018 (before April 1, 2018), which is my purchase date. Do I still qualify for the exception?

Yes, you would qualify for the exception in your case. You would be considered to incur acquisition indebtedness prior to Dec.15, 2017. The new law is reducing the underlying mortgage loan indebtedness from $1 million to $750,000. So, your exception would only need to apply if your indebtedness is greater than $750,000. If the mortgage loan is less than $750,000, this issue would be a moot point and not come into play. 

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Answered by: Rosemary Lamaestra, CPA, CFE, is a manager with RLB Accountants in Allentown, Pa.  

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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