May 3, 2026
Debt recycling is a tax strategy that converts a loan with non-deductible interest into a loan with deductible interest. It's most commonly used with mortgages. At the federal level, interest on the first $750k of a mortgage is deductible. The same is true of a home equity lines of credit (HELOC), as long as the loan is used to buy, build, or substantially improve your home. The $750k cap applies to mortgages on your primary or secondary residences. So, if you have a $500k mortgage on your first home and a $250k mortgage on your second home, the interest on both is fully deductible.
For very wealthy buyers, the $750k cap is a problem. If you want to buy a $10M house with a $2M down payment and an $8M mortgage, interest on less than 10% of the loan is deductible. But, for cash-rich buyers, there's an easy way to recycle this debt into a fully deductible form, even for your third, fourth, or fifth home. First, use delayed financing, meaning you buy your home in cash, then mortgage it. Take the funds from the mortgage and invest them in equities (or other securities), and now, for tax purposes, the full value of the mortgage is considered a margin loan. Interest on margin loans is fully tax deductible.
Voilà. You have successfully recycled your debt. The same strategy can be used when doing a cash-out refinance. If you invest the cash, then interest on the new mortgage is fully deductible, no matter the size of the loan.
I built a simple tool here that shows how much you stand to save over time by debt recycling your mortgage. At the moment, it's just a static site. If it gains some traction I'll add accounts, with the ability to save and share plans.