What is acquisition debt for mortgage interest?

The definition

Publication 936 defines home acquisition debt as a mortgage you took out after October 13, 1987, to buy, build or substantially improve a qualified home, your main home or second home. The mortgage must also be secured by that home. If the mortgage is bigger than the cost of the home plus the cost of any substantial improvements, only the portion up to that cost counts as home acquisition debt.

The dollar limits

The total you (or your spouse, on a joint return) can treat as home acquisition debt on your main home and second home depends on when the debt was secured. After October 13, 1987 and before December 16, 2017, the limit is $1 million ($500,000 if married filing separately). After December 15, 2017, it is $750,000 ($375,000 if married filing separately). A taxpayer who entered a written binding contract before December 15, 2017, to close on a principal residence before January 1, 2018, and bought it before April 1, 2018, is treated as having incurred the debt before December 16, 2017. Both limits are reduced, but not below zero, by your grandfathered debt, meaning loans from on or before October 13, 1987, which are not limited.

The married-filing-separately figure is simply half of the full limit: $375,000 against $750,000, and $500,000 against $1 million. It applies to each spouse on a separate return.

When the whole mortgage is deductible

You can deduct all the interest, and you do not need the Table 1 worksheet, if all your mortgages are grandfathered debt, or if the combined mortgage balances for the entire year are within the limits and the loans were used to buy, build or substantially improve the homes. The publication’s Figure A walks through this as a flowchart. It is the balance “at all times during the year” that matters, so a single month over the limit changes the analysis.

Refinanced acquisition debt

Any secured debt used to refinance home acquisition debt is treated as home acquisition debt, but only up to the balance of the old mortgage principal just before the refinancing. If you borrow more than that and spend the extra on something other than buying, building or improving the home, the extra is not acquisition debt. As an illustration, a $400,000 balance refinanced into a $450,000 loan whose extra $50,000 goes to a car leaves $400,000 of acquisition debt.

Timing rules that treat a loan as acquisition debt

A mortgage secured by a qualified home can be treated as used to buy, build or improve even if you used the money otherwise in three cases. You buy the home within 90 days before or after taking out the mortgage, and the debt is limited to the home’s cost plus improvements. You build or improve and take out the loan before the work is finished, and the debt is limited to expenses within 24 months before the loan. Or you take out the loan within 90 days after the work is done, with debt limited to expenses from 24 months before completion through the loan date. The publication’s example: a home bought June 3 for $175,000 in cash from an earlier sale, then a $150,000 mortgage on July 15 used for stocks. Since the purchase was within 90 days, the entire $150,000 qualifies because it is under the home’s cost.

How to scale interest when you exceed the limit

Table 1 in the publication works out the qualified loan limit, then divides it by the total of your average mortgage balances and multiplies the result, rounded to three decimals, by the interest you paid. The calculator above does that last step. The publication gives an average-balance method: average the first and last balance if you did not borrow more, did not prepay more than a month’s principal and made level payments; or divide interest paid by the interest rate. For an illustration: $900,000 average balance, $750,000 limit and $40,000 of interest gives 0.833 and $33,320 deductible. The excess is not home mortgage interest; if the proceeds funded a business or investment, it may be deductible there.

Points and the limit

You cannot fully deduct points paid on a mortgage that exceeds the limits. Multiply the deductible points by the same decimal from line 14 of Table 1 and enter the result on Schedule A, line 8a or 8c; the remainder is not deductible as home mortgage interest, unless used for business or investment.

Related pages

Home equity debt that was not used on the home is covered on the home equity loan interest page, and improvement loans on the home improvement loan page. For a full calculation use the mortgage interest deduction calculator, and check whether itemizing helps with the whether itemizing beats the standard deduction.

Sources

• IRS Publication 936, Home Mortgage Interest Deduction (2025): “Part II. Limits on Home Mortgage Interest Deduction” and “Home Acquisition Debt”, plus the Reminders, Table 1 and Table 2. Read November 2, 2026.

Edition read: Publication 936 (2025), for use in preparing 2025 returns. Dollar limits in this publication are for 2025; the publication notes that tax legislation enacted July 4, 2025 (P.L. 119-21) may affect federal deductions, so check IRS.gov/Pub936 and the Schedule A instructions for your tax year. This page summarizes the publication and does not replace it. Marked for human review.