Under the Tax Cuts and Job Act, the limit on acquisition debt is reduced to $750,000 ($375,000 for a married taxpayer filing separately).

 The $1 million pre-TCJA limit applies to acquisition debt incurred before Dec. 15, 2017 and to debt arising from refinancing pre-Dec. 15, 2017 acquisition debt to the extent the debt resulting from the refinancing does not exceed the original debt amount. Thus, taxpayers can refinance up to $1 million of pre-Dec. 15, 2017 acquisition debt, and that refinanced debt amount won’t be subject to the reduced limitation.

Also starting in 2018, there is no longer a deduction for interest on “home equity debt” unless the home equity debt is used to acquire, construct, or substantially improve the taxpayer’s principal home, and the debt is secured by the principal home.  So taxpayers that have home equity debt that was used to finance the original purchase or improvements done in subsequent years will be able to deduct the home equity debt interest after 2017.

The elimination of the deduction for interest on home equity debt applies regardless of when the home equity debt was incurred. Taxpayers considering taking out a home equity loan (i.e. a loan that’s not incurred to acquire, construct, or substantially improve the home) should take into consideration the fact that interest on the loan won’t be deductible.  Further, taxpayers with outstanding home equity debt (again, meaning debt that’s not incurred to acquire, construct, or substantially improve the home) will lose the prior-law interest deduction for interest on that debt, starting in 2018.