I agree. You should ask the client what the original acquisition loan amount was. For example 200,000 in 2000. Then for each cash-out refi, I believe you must determine the balance of the old loan just before refi (eg 150,000) and the amount of the new loan (eg 175,000). This would leave 150,000 in acquisition debt and 25,000 in new debt. If that new debt is equity debt you would then say 150,000/175,000 or 86% is still acquisition debt. The other debt 25,000/175,000 or 14% is equity debt. Apply the percentages to the interest on the 1098.

In the example if the 25,000 was used 50/50 for improvements and personal use you would adjust the amounts. 162,500/175,000 or 93% would be acquisition. 12,500/175,000 or 7% would be equity. Apply the percentages to the 1098 interest.


Pub 936 explains the definitions and loan limits.
Part II TABLE 1 does not appear to help breakdown the situation you are asking about unless the mortgages are more than the 1Mil or 750K loan limits.


This is my understanding. If others are calculating it differently I’d be curious to know your process.