Blog

Home / Insights / Blog / IRS Clarifies Home Equity Loan, Line of Credit Interest Deductions

IRS Clarifies Home Equity Loan, Line of Credit Interest Deductions

by

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:

  1. 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
  2. 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.

About Ericksen Krentel

Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.

That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.

Learn more at www.ericksenkrentel.com.

Related Blog Posts

IRS May Extend The Transition Period For Compliance Regarding Research Credit Refund Claims

This article explains that in 2021 the IRS announced that "refund claims for section 41 research credits must include detailed information in five specific areas, with claims failing to meet these requirements deemed invalid. The IRS provided a one-year transition...

The Importance of Cost Segregation as Audit Risk Rises

This article explains that President Biden has created the Inflation Reduction Act, in which the IRS has been granted $78 billion to hire 87,000 new employees from now until 2031. Real estate clients may now be looking to perform a cost segregation study so that there...