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Will Home Equity Loan Interest Be Deductible In 2018?

Home-Equity-Loan-deduction

The answer…………it depends.  It depends on what you used or are going to use the home equity loan for.  Up until the end of 2017, borrowers could deduct interest on home equity loans or homes equity lines of credit up to $100,000.  Unfortunately, many homeowners will lose this deduction under the new tax law that takes effect January 1, 2018.

Old Rules

Taxpayers used to be able to take a home equity loan or tap into a home equity line of credit, spend the money on whatever they wanted (pool, college tuition, boat, debt consolidation) and the interest on the loan was tax deductible.  For borrowers in higher tax brackets this was a huge advantage. For a taxpayer in the 39% fed tax bracket, if the interest rate on the home equity loan was 3%, their after tax interest rate was really 1.83%.   This provided taxpayers with easy access to cheap money.

 The Rules Are Changing In 2018

To help pay for the new tax cuts, Congress had to find ways to bridge the funding gap.  In other words, in order for some new tax toys to be given, other tax toys needed to be taken away. One of those toys that landed in the donation box was the ability to deduct the interest on home equity loans and home equity lines of credit.   But all may not be lost.  The tax law splits “qualified residence interest” into two categories:

  • Acquisition Indebtedness
  • Home Equity Indebtedness

Whether or not your home equity loan or HELOC is considered acquisition indebtedness or home equity indebtedness may ultimately determine whether or not the interest on that loan will continue to be deductible in 2018 and future years under the new tax rules.  I say “may” because we need additional guidance form the IRS as to how the language in the tax bill will be applied in the real world.  As of right now you have some tax professionals stating that all interest from homes equity sources will be disallowed beginning in 2018 and other tax professionals taking the position that home equity loans from acquisition indebtedness will continue to be eligible for the tax deduction in 2018.  For the purpose of this article, we will assume that the IRS will continue to allow the deduction of interest on home equity loans and HELOCs associated with acquisition indebtedness. Read remainder of article by clicking https://www.greenbushfinancial.com/will-home-equity-loan-interest-deductible-2018/

 

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