HELOC Interest No longer deductible ? What effect on Investors?

HELOC Interest No longer deductible ? What effect on Investors?

Rental Property Investor · Buhl Idaho · Member since 2018 · 20 posts · 12 votes

I Found this on a mortgage Calculator website, if this is true...

What would be our new strategy to counter the Thousands of Dollars in Interest payments we can no longer deduct ?

Understanding The Income Tax Implications Of Tap Home Equity

Prior to the passage of the Tax Cuts and Jobs Act of 2017 interest on up to $100,000 of second mortgage debt via home equity loans or HELOCs was tax deductible no matter how the money was used. The law changed how mortgage debt is treated based on how loan proceeds are used.

Home equity debt which is taken out to pay for things other than making substantial improvements to the home (which improve the basis of the home) is no longer tax deductible, as it is not considered acquisition indebtedness. If home equity debt is taken on in a format which is considered origination indebtedness then interest on the loan may be considered tax deductible. In general things which qualify as origination indebtedness include money used to acquire, build, or substantially improve the primary residence that secures the loan. It is important to keep your receipts on your improvement purchases in case you are audited. Please speak with your accountant if you have questions about what types of home improvements qualify.

IRS publication 936 explains how the home mortgage interest deduction works.

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  • Rental Property Investor · Buhl Idaho · Member since 2018 · 20 posts · 12 votes
    8y

    This is the link to where the statement can be found 

    https://www.mortgagecalculator.org/calculators/sho...

  • Nicholas AiolaBusiness Member
    CPA & Investor · New York, NY · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    @John Wallace This is in relation to the deductibility of interest on the borrower's individual income tax return as an itemized deduction (Schedule A).

    If the proceeds from an equity loan are used to purchase another investment property, the interest will be deductible against rental income.

    We have to apply the tracing rules when determining the deductibility of interest payments. The deduction follows the use of the money.

    Aiola CPA, PLLC554 Reviews
  • Raleigh, NC · Member since 2017 · 3 posts · 1 vote
    8y

    @John Wallace, check out this thread by Alik Levin, I think it helps...

    HELOC interest deduction - New Tax Law

  • Rental Property Investor · Buhl Idaho · Member since 2018 · 20 posts · 12 votes
    8y

    Very good information thank you !!!

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