Tag Archives for " Florida home equity loan "
On February 21, 2018, the Internal Revenue Service (IRS) has announced that in the majority of cases, homeowners can continue to deduct interest paid on home equity loans.
With the goal of clarifying the concerns raised by taxpayers and tax professionals, the IRS emphasized in a media statement that “despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labelled. The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 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.”
To further clarify the new law, the IRS explained that if a home equity loan is used to build an addition onto an existing home, the interest would be tax deductible. However, if a home equity loan is used to pay for non-home expenses such as credit card debt, then the interest would not be deductible.
The IRS adds, “As under prior law, the loan must be secured by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements.”
New dollar limit on total qualified residence loan balance
For those considering getting a mortgage, the new tax law charges a lower dollar limit on mortgages qualifying for the home mortgage interest deduction. Starting in 2018, taxpayers may only deduct interest on $750,000 of qualified residence loans. For married taxpayers filing a separate return, the limit is $375,000. These limits decreased from the previous residence loan amount of $1 million, and $500,000 for married taxpayers filing a separate return.
These limits pertain to the combined amount of loans used to buy, build or improve the taxpayer’s main home and second home.
Here are examples provided by the IRS to further clarify the new tax law:
For more information about impacts from the new tax law, visit the Tax Reform page on IRS.gov.