Interest on Home Equity Loans Often Still Deductible Under New Law

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Prepared by Susan Clifford, CPA Principal

The Tax Cuts and Jobs Act of 2017 suspends from 2018 until 2026 the deduction of interest paid on home equity loans and lines of credit, unless they are used to buy, build, or make substantial renovations to the home that secures the loan. Therefore, the IRS is advising taxpayers who already have an equity line in place or who take one out in the future, that in many cases they are still able to deduct some or all of the interest paid on their home equity loans.  However, if you use some or all of the home equity loan for personal reasons, such as paying off student loans or credit card debt, the interest on the portion of the loan used personally would not be deductible.

Additionally, the new law imposes a lower dollar limit on mortgages able to benefit from the deduction. For any mortgage taken out after December 15, 2017, the owner may only deduct interest on $750,000 (previous limit of $1 million) of qualified residence loans.  For a married taxpayer filing a separate return the limit is $375,000 (previous limit of $500,000). The limits apply to the combined amounts of loans used to buy, build, or renovate the taxpayer’s main and second home. The limit does not apply to mortgages in place on or before December 15, 2017.  They are grandfathered under the previous rules.

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