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2017 Tax Reform: IRS Clarifies Deductibility of Interest on Home Equity Loans

In an Information Release (IR 2018-32) dated February 21, 2018, as response to many questions received from taxpayers and tax professionals, the IRS advised that in many cases, taxpayers can continue to deduct interest paid on home equity loans under the recently enacted Tax Cuts and Jobs Act (TCJA). As part of the same information release, the deductibility of interest on loans for second homes was also clarified.

In this guidance, the IRS said that despite the newly-enacted restrictions on home mortgages under the TCJA, taxpayers can often still deduct interest on a home equity loan, home equity lines of credit or second mortgages, regardless of how the loan is labeled. The IRS clarified that the TCJA suspends the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan. For example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debt, is not. To see the examples in the Information Release, click here.

Under the TCJA, for tax years beginning after December 31, 2017 and before January 1, 2026, the limit on acquisition debt is reduced to $750,000 ($375,000 for a married taxpayer filing separately). The $1 million pre-TCJA limit applies to acquisition debt incurred before December 15, 2017, and to debt arising from refinancing pre-December 15, 2017 acquisition debt, to the extent the debt resulting from the refinancing does not exceed the original debt amount.

If you have questions regarding mortgage interest deductions, please contact your GBQ tax professional.

Article written by:
Rich Lundy, CPA
Tax Director

  • Rich Lundy
  • Director, Tax & Business Advisory Services
  • (614) 947-5264