Question about allocation of mortgage prepayment

Suppose that my current mortgage balance is $150K.
Then I do a cash out refinance of $300K on March 31.
I recognize that interest payments are now broken up into - Home acquisition debt (150K) 50% - Deductible home equity debt (100K) 33% - Non-deductible home equity debt (50K) 17%
Now hypothetically on April 1, I pay off $50K of the loan.
Does all of this get applied to the non-deductible part, which is what I want, - Home acquisition debt (150K) - Deductible home equity debt (100K)
or does this prepayment have to be proportionally applied to all 3 categories so that my new balances would be
- Home acquisition debt (125K) 50% - Deductible home equity debt (83K) 33% - Non-deductible home equity debt (42K) 17%
Thanks in advance
Reply to
jms2l

Suppose that my current mortgage balance is $150K.
Then I do a cash out refinance of $300K on March 31.
I recognize that interest payments are now broken up into - Home acquisition debt (150K) 50% - Deductible home equity debt (100K) 33% - Non-deductible home equity debt (50K) 17%
Now hypothetically on April 1, I pay off $50K of the loan.
Does all of this get applied to the non-deductible part, which is what I want, - Home acquisition debt (150K) - Deductible home equity debt (100K)
or does this prepayment have to be proportionally applied to all 3 categories so that my new balances would be
- Home acquisition debt (125K) 50% - Deductible home equity debt (83K) 33% - Non-deductible home equity debt (42K) 17%
Thanks in advance =============== Prorated proportionally.
Reply to
D. Stussy

not proportional. From Pub. 936:
Unless you are subject to the overall limit on itemized deductions, you can deduct all of the interest you paid during the year on mortgages secured by your main home or second home in either of the following two situations. a.. All the mortgages are grandfathered debt. b.. The total of the mortgage balances for the entire year is within the limits discussed earlier under Home Acquisition Debt and Home Equity Debt. In either of those cases, you do not need Table 1. Otherwise, you can use Table 1 to determine your qualified loan limit and deductible home mortgage interest.
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Table 1 also seems to work to recalculate the interest that is deductible after you have paid off a portion of the NDHED in a manner that the pay down is fully applied to the NDHED, although I did not work through a numerical example.
Reply to
Reggie

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