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Tax Law Changes: Can you still deduct the interest on your home equity loan?

Before the new tax law went into effect, primary home owners could deduct interest on their first AND second mortgages up to $1,000,000 regardless of what the money was used for. Then, the new tax laws went into effect, and everyone started to think that second mortgages can no longer be deducted.

The new law that was enacted this year suspends the interest deduction on a HEL/HELOC for the next eight years. However, this suspension does not apply to all home equity loans or lines.

A few things to consider. If you used the money to buy a car, a boat, or to pay off credit cards, then you most likely will not be allowed to deduct these items. If your HEL or HELOC was used to acquire your home or make improvements to your home to increase its value, then it may be deductible.

The IRS has recently published a news release on this exact subject:

Key points I read from the release. If you used your HEL or HELOC to “acquire, construct or improve” your primary residence, this is considered “acquisition debt” as opposed to “home equity indebtedness”. This clarification allows it to be deducted like your first mortgage since the new law still allows you to deduct

If you take out a loan now (and for the next 8 years), you have the ability to deduct interest up to $750K (assuming it is acquisition debt). This amount is combining your first and second mortgage.

If you took out the loan ON or BEFORE December 15, 2017, you have the old limit of $1,000,0000 in indebtedness.

So take the time to talk with your tax preparer, accountant or CPA to verify the info that is outlined on the IRS doc, and see what options you have moving forward. I am not a tax professional, and this information was derived from the IRS doc that is linked in this article.

Don’t keep us a secret!  If you know someone that is thinking of buying or selling their home, let us know. We would love to reach out to them today!

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