With the biggest Tax Law changes in over 30 years now officially on the books for 2018, it is time for us to address how these new laws affect you and your home equity loans, Home Equity Line of Credit loans (HELOCs) and second mortgages? We have many questions. Is the interest on these loans still considered tax deductible? What about the interest on a Primary Mortgage loan?
The broad stroke is, there were numerous changes made in the Tax Cuts and Jobs Act which took effect on January 1, 2018. You need to know how these changes will ultimately affect your lifestyle and finances. The action you take now will have ramifications on next year’s (2018’s) tax returns.
According to the IRS, unless you are utilizing the funds from your home equity loan, HELOC or second mortgage to buy, build or substantially improve the value of your existing home/property (the property which is securing the loan), the interest paid on your loan will no longer be considered deductible. For example, in the past, you were allowed to deduct up to $100,000 of interest on a home equity loan to fund your retirement account or give that college fund a boost. Beginning January 1, 2018, those deductions are no longer allowed. In addition, if you planned to utilize the proceeds from your HELOC to pay other expenses like credit card or student loan debt, moving forward that interest will also be deemed non-deductible. However, if you use these funds to build an addition on your home, then the interest will be deductible.
Also note, that the new Tax Cuts and Jobs Act has lowered the allowable interest deduction limit on “qualified residence loans” from one-million-dollars to $750,000. As a married taxpayer filing a separate tax return, your allowable interest deduction on “qualified residence loans” has been lowered from $500,000 to $375,000.
We here at United Northern Mortgage Bankers Limited recommend you review your home equity loan, your HELOC and/or Mortgage with one of our Licensed Mortgage Loan Originators to discuss what solutions may be best for you. It is also recommended that you consult with your accountant or financial advisor to further assess your options. Our Mortgage Loan Originators and Senior Security Advisors are always here to assist you to answer any questions you may have.
You may be eligible to combine your HELOC and Mortgage into one Primary Mortgage Loan. Your eligibility will allow you to deduct the interest paid on your Primary Mortgage Loan under the new 2018 tax laws. Don’t let another month go by, see the illustration below and let the new tax laws work for you!
The portion of these tax laws applicable to the individual home owner have a seven-year life span. We will have to navigate around these laws until they expire in 2025. If these amended portions of the tax laws are not renewed by 2025, then we will revert back to the tax laws we had prior to these amendments.
As we usher in March, don’t let another month go by without understanding how to best navigate these tax law changes and retain your hard earned money and maintain your lifestyle!