IRS Clarifies Home Equity Loan, Line of Credit Interest Deductions
As time passes since the Tax Cuts and Jobs Act of 2017 was signed into law, the Internal Revenue Service continues to review the legislation and issue guidance. The most recent involves home equity loans and lines of credit.
The IRS has clarified they are interpreting the provisions of the Act to continue to allow a deduction for the interest paid on home equity loans and lines of credit subject to the following restrictions as of January 1, 2018:
- The total amount of underlying debt on both the first and second homes, including all mortgages and home equity loans and lines of credits, cannot exceed $750,000 ($375,000 if married filing separately); and
- The home equity loan or line of credit proceeds must have been used to buy, build or substantially improve the home that secures the loan.
If the proceeds were used for other reasons, such as personal expenses (including paying off credit cards), the interest is not deductible. Likewise, if the proceeds were used to buy, build or substantially improve a second home, the interest is not deductible. For example, you can’t deduct interest paid on a home equity loan from home A to buy a boat, recreational vehicle or vacation home.
We will continue to share information regarding changes, clarifications and new guidance as it becomes available. In the meantime, please contact your Ericksen Krentel tax professional or email us if you have any questions or concerns.
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