There has been a tremendous amount of confusion surrounding the new tax law, especially as it pertains to the deductibility of home equity line interest, or HELOC interest. Here is a summary of the tax law that we currently have in place regarding BOTH types of interest, the mortgage interest and home equity interest:
- For home mortgage acquisition loans made BEFORE DECEMBER 16, 2017, you are allowed to deduct mortgage interest incurred to purchase, construct, or substantially improve a principal or second home if it is secured by the home and limited to $1,000,000 in acquisition debt.
- For home mortgage acquisition loans made AFTER DECEMBER 15, 2017, the total amount of acquisition debt for purposes of deducting mortgage interest has been reduced to $750,000.
- For home equity debt AFTER 2017, the interest is NO LONGER DEDUCTIBLE as mortgage interest regardless of when the home equity debt was incurred (the new tax law suspends the deduction through 2025) unless the home equity was used to purchase, construct, or substantially improve the home. The trick here is to make sure that the total acquisition indebtedness doesn’t exceed $750,000. As we all know, a lot of home equity loans are used for personal expenses. Those are the cases where the loan interest is no longer deductible as mortgage interest.
Please keep this new law in mind as you gather your tax return information for 2018. If you have questions for us, please let us know.