IRS notice CP28 explained, mortgage interest deduction limits homeowners should know

Introduction

Receiving a letter from the IRS can be alarming, especially when it includes a notice number like CP28. Many homeowners worry that this notice signals penalties or serious tax trouble. In most cases, that is not true.

IRS Notice CP28 is a common notice related to mortgage interest deductions, especially for homeowners with larger mortgages or multiple properties. Understanding why it is issued and how the deduction rules work can help you resolve the issue quickly and avoid future problems.

At TaxPro Consult and Bookkeeping Services, we regularly help homeowners in Charlotte, NC, and across the U.S. understand IRS notices and correct mortgage interest deductions before they escalate.

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What is IRS notice CP28?

IRS Notice CP28 is issued when the mortgage interest claimed on Schedule A exceeds the amount allowed under IRS rules. This typically occurs when the total mortgage balance is higher than the legal deduction limit.

The notice serves as a warning and request for review. It does not automatically mean penalties or an audit.

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Mortgage interest deduction limits explained

Under current federal tax law, mortgage interest is deductible only on the first $750,000 of qualified home loan debt for loans originated after December 15, 2017.

This limit applies to:

• The combined balance of all qualifying mortgages
• All lenders combined
• All qualifying properties combined

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Important clarification:

• One home or two homes, same limit
• One lender or multiple lenders, same limit

If your total mortgage debt exceeds $750,000, only a portion of the interest paid may be deductible.

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How the IRS calculates allowable mortgage interest

The IRS uses a percentage-based calculation to determine how much interest can be deducted.

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Example 1, one primary residence with multiple loans

• Total mortgage balance: $1,240,000
• Total interest paid: $40,000

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Calculation:
$750,000 ÷ $1,240,000 ≈ 60%

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Allowable mortgage interest deduction:
$40,000 × 60% = $24,000

The remaining interest is not deductible on Schedule A.

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Example 2: primary home and second home

• Primary residence loan: $500,000
• Second home loan: $400,000
• Combined balance: $900,000
• Total interest paid: $36,000

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Calculation:
$750,000 ÷ $900,000 ≈ 83%

Allowable mortgage interest deduction: $36,000 × 83% = $30,000

What happens to the disallowed mortgage interest?

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If you do not have a home office

Mortgage interest related to loan balances above $750,000 is not deductible. The excess interest is disallowed entirely.

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If you have a qualified home office

The excess interest may not be lost completely. The business-use portion of the excess interest may be deductible on Form 8829, based on the percentage of the home used exclusively and regularly for business. The personal-use portion remains non-deductible.

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Is IRS notice CP28 serious?

This is an important point for homeowners:

IRS Notice CP28 is a warning, not a penalty notice.

Penalties generally apply only if:

• The notice is ignored
• Additional tax assessed by the IRS is not paid

Most CP28 notices are resolved by adjusting the deduction and responding properly.

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How CP28 notices are typically resolved

In most cases, resolving IRS Notice CP28 involves:
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• Reviewing total mortgage balances
• Recalculating allowable mortgage interest
• Amending the tax return if necessary
• Responding to the IRS notice within the required timeframe

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When handled correctly, the issue usually ends without further IRS action.

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Are the rules for mortgage interest deductions changing?

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Tax law updates:

There has been discussion about potential changes to mortgage interest deduction limits under proposed tax reform legislation. However, no changes have been enacted.

The $750,000 mortgage interest deduction limit remains in effect, and the IRS continues to enforce it. This is why CP28 notices are still being issued.

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Final thoughts for homeowners

IRS Notice CP28 is often triggered by high mortgage balances, not by mistakes or misconduct. Understanding mortgage interest deduction limits can help homeowners:
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• Avoid incorrect deductions
• Respond confidently to IRS notices
• Prevent future tax issues

If you own a home with a larger mortgage or multiple properties, reviewing your mortgage interest deductions annually is essential.

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Disclaimer, TaxPro Consult and Bookkeeping Services

This article is for general education only. It does not constitute tax, legal, or accounting advice. Regulations change, and individual situations differ. You should consult a qualified tax professional who can review your specific circumstances. TaxPro Consult and Bookkeeping Services is not acting as your tax preparer or tax advisor in this content.

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Need help with an IRS notice or mortgage interest deduction?

If you are in Charlotte, NC, or anywhere in the U.S., our team at TaxPro Consult and Bookkeeping Services can help you review your return, respond to IRS notices, and stay compliant.

Call us or schedule a consultation online for personalized guidance.