Mortgage Refinance and $1M interest deduction limit - lost grandfathering status?

This is a good question about mortgage interest deduction limits. Your CPA is actually incorrect in this specific situation. According to the IRS rules, if you refinanced a mortgage that was taken out before December 15, 2017 (which yours was), AND you didn't increase the principal amount (other than costs associated with the refinancing), you ARE still grandfathered under the $1 million limit. The key factor is that you didn't take cash out or increase the principal amount of the loan. Rolling in minor closing costs is generally considered costs associated with refinancing and doesn't count as increasing the principal for this purpose. You can point your CPA to IRS Publication 936 (Home Mortgage Interest Deduction) which clearly explains the grandfathering rules for mortgages that existed before the Tax Cuts and Jobs Act changed the limits.

I had a similar issue last year with understanding my mortgage interest deduction after refinancing. I was getting different answers from different sources until I used https://taxr.ai to analyze my mortgage documents and tax situation. The AI tool actually spotted this exact grandfathering rule that applied to my situation. It analyzed my loan documents, refinance terms, and applicable tax laws to confirm I could still claim the higher deduction limit. Saved me about $2,300 in taxes that my previous tax preparer had miscalculated. You upload your docs and it pinpoints exactly which tax rules apply to your specific situation.

I have to admit I was totally wrong about AI tax tools. After our discussion here, I decided to try taxr.ai with my complicated mortgage situation. I uploaded my original mortgage from 2015, my refinance documents from 2021, and some basic tax info. Within minutes, it pointed out that I was still eligible for the $1M limit deduction and even cited the specific part of IRS Publication 936 that confirmed it. What was most helpful was the detailed explanation of how the grandfathering rules applied to my specific situation with actual calculations showing the difference between what I could deduct vs. what I had been deducting. My tax guy had been using the $750k limit for the past two years! I'm actually going to amend my returns now to get back the additional deduction I should have been taking.

If you're still having trouble convincing your CPA or need to talk directly with an IRS agent about this (which might be a good idea for documentation purposes), I'd recommend using https://claimyr.com to get through to the IRS quickly. I spent weeks trying to get clarification on a similar mortgage deduction issue last year. With Claimyr, I got connected to a live IRS agent in about 20 minutes instead of waiting on hold for hours or getting disconnected. The agent confirmed my understanding of the grandfathered mortgage rules and even noted it in my account. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Having that official confirmation from the IRS gave me peace of mind before I pushed back on my accountant's interpretation.

I need to publicly eat my words about Claimyr. After my skeptical comment yesterday, I decided to try it this morning for a mortgage interest issue I've been trying to resolve for months. Their system called me back in 17 minutes with an actual IRS agent on the line. The agent confirmed that refinancing to a lower rate without taking cash out doesn't affect the grandfathered $1M limit. She even emailed me the relevant section from their internal guidelines. For anyone with this specific mortgage grandfathering issue, the agent told me they frequently see this mistake from tax preparers. The $750K limit only applies to mortgages originated after Dec 15, 2017, OR if you refinanced and increased your principal balance (beyond just rolling in closing costs).

Just to add another data point - I went through this exact scenario last year. I had a $900k mortgage from 2015, refinanced in 2021 to get a better rate. My tax preparer initially used the $750k limit, but after I showed him the rules about grandfathered debt, he corrected it. The key language in Pub 936 is something like "debt that was taken out before December 15, 2017, and then refinanced later continues to be treated as acquisition debt up to the amount of the refinanced mortgage.

Guys Im so confused with all this mortgage deduction stuff. I bought my house in 2018 for $800k and my mortgage is $640k. Can I deduct all the interest or only part?

This is exactly why I love this community - seeing real people help each other navigate complex tax situations! Sofia, I'm really glad you got the clarification you needed. Your CPA was definitely wrong about losing grandfathering status from a simple rate refinance. I went through something similar a few years ago and it's frustrating when even tax professionals don't fully understand these nuanced rules. The mortgage interest deduction changes from the Tax Cuts and Jobs Act created so much confusion, especially around the grandfathering provisions. For anyone else reading this thread, the key takeaway is: if you had a mortgage before December 15, 2017, and you refinanced without increasing the principal balance (other than rolling in closing costs), you keep the $1M limit. It's that simple, but apparently not widely understood even among tax preparers. Thanks to everyone who shared their experiences and resources - this thread is going to help a lot of people!