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Home Equity loan and Heloc Interest under The Tax Cut and Jobs Act of 2017

January 12th, 2018 4:18 PM by Gene Tidgewell

There are a number of items in the new Tax Law that affect real estate. One we will address today is the deductibility of interest on Home Equity Loans and Helocs (Home Equity Lines of Credit).

Under the old tax law a homeowner could borrow equity out of their house and deduct the interest.

Under the new law passed in December that interest is only deductible only if it is acquisition indebtedness. Otherwise it is not deductible on your tax return. There is no grandfather  clause so this affects existing home equity debt as well as new Home Equity debt going forward.

What is Acquisition Indebtedness?
Acquisition indebtedness is defined as “indebtedness that is secured by the residence and that is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer”.  It seems likely, under this definition, if you took out a home equity loan to build an addition on your house, that would be classified as a “substantial improvement” and you would be able to continue to deduct the interest on that home equity loan in 2018. Where we need help from the IRS is further clarification on the definition of “substantial improvement”.  Is it any project associated with the house that arguably increases the value of the property?

Please consult your Tax Professional for further clarification.

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Posted in:General
Posted by Gene Tidgewell on January 12th, 2018 4:18 PM

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