How Do I Know If My Home Equity Loan Is Tax Deductible

How Do I Know If My Home Equity Loan Is Tax Deductible

How Do I Know If My Home Equity Loan Is Tax Deductible?


With the new GOP Tax Plan now in effect for 2018 many people are wondering, “Can I still deduct my home equity line of credit? Should I refinance to make it tax-deductible again?” Or just “How do I know if I can deduct the Home Equity Line of Credit (HELOC) interest?” Image titleWe will answer your questions and more below. 

 The basics of home equity lines of credit and new tax plan 

This issue tends to confuse many homeowners. There are quite a few cases where the interest on a HELOC can be deductible but there are also many times the interest will not be deductible. To add to the confusion, there will also likely be cases when only a certain portion of the home equity loan is deductible. It all depends on your specific situation. 

I live in Los Angeles, and many of my clients live in locales with high property values. Californians feared the new tax law (The Tax Cuts and Jobs Act of 2017) - enacted last December- would completely screw those counting on deducting interest from Home Equity Loans and Lines of Credit. Earlier proposals of the tax plan would have completely eliminated this deduction. Thankfully, that didn’t happen but the final plan did put quite a few limitations on this deduction for property owners. 

 To help reduce the confusion, the IRS issued an advisory which you can read here. From the advisory we get some of the details of what will be deductible and what will not. For the tax years 2018 through 2025, you will not be able to deduct HELOCs. There are, however, a few exceptions. If you plan on taking this deduction, your loan must be used to “buy, build or substantially improve” the residence that secures the underlying loan. 

 What does or does not qualify for the deduction? 

 If you are using the loan to do work on your home, you can still deduct the interest. Think of things like replacing the roof, adding solar panels or remodeling a kitchen or bathroom. I am sorry to let you know that furniture and artwork do not count. 

 On the other hand, if you are trying to use your home like a piggy bank to fund your lifestyle, you will not be able to deduct the interest. Your plan to pay for Junior’s college with home equity might also be out the window. Likewise, you can no longer use the money to pay off credit cards or use it to buy that new car you’ve been eyeing. In the end, what you use the money for is up to you. Whether or not that use is deductible is up to the IRS. 

 Limits to home equity line amounts 

 Generally, homeowners may deduct interest paid on HELOC debt up to $100,000. But here is some fun, fine print you probably weren’t aware of. The HELOC deduction is limited to the purchase price of the home. This may trip up some of you who’ve owned your home for decades or perhaps bought a real fixer upper. For example, let’s say you purchased a home for $50,000 and plan to put a ton of work into. In this case, you would only be able to deduct interest paid up to $50,000 if using a HELOC.


Courtesy of David Rae Fiscal Fitness Maestro, Making Dollars and Sense Work for You  (AP Photo/Keith Srakocic)


Jake Grabarek BRE#02043581 Headshot
Author:
Phone: 530-720-5327
Dated: March 23rd 2018
Views: 150
About Jake: Jake is a driven and passionate young man. His appreciation for real estate and ability to produce a...

Property Search








RSS Feed

View our latest blog posts in your RSS reader. Click here to access. RSS

Search Blog

Recent Blogs

Whats Happening In Butte County October 6 2018 - What's Happening the Weekend of
Plumas Events For October 6th 2018 - What's Going on The Weekend of;
Creamy Apple Cider Chicken Skillet - Creamy Apple Cider Chicken Skillet
How We Bought Our First Home On A Tight Budget - How We Bought Our First Home (On a

Saved Properties

This is a list of your favorite properties. We will email you if a property is reduced or leaves the market.

Click 'Save' to add a property to this list.

Register / Login

New & returning visitors please enter your information to login.

By clicking 'register' you are agreeing to our terms of use & giving us expressed written consent to contact you.

Questions? Comments? Complaints?

This message will go directly to the head of our team.

Location & Address

The Gilmour Real Estate Group
2080 E. 20th Street #170
Chico, CA
530-601-4274