Mortgages you took out after October 13, 1987 to buy, build, or improve your main home and/or second home are called acquisition debt. It also must be secured by that home. If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt.
Home acquisition debt is also limited with certain conditions. The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately). This limit is reduced (but not below zero) by the amount of your grandfathered debt (discussed later). Debt over this limit may qualify as home equity debt (also discussed later).
Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt is not considered home acquisition debt.
A mortgage that does not meet all the requirements and so does not qualify as home acquisition debt may qualify at a later time.
