Mortgage Interest Deductions: A New Frontier

The TCJA made changes to the rules for deducting interest on your home mortgage and home equity loan. Under the old rules, one could deduct interest on up to a total of $1 million of mortgage debt, plus interest on up to $100,000 of home equity indebtedness. The TCJA, starting in 2018, will limit qualifying debt at $750,000. However, for acquisition debt incurred before Dec. 15, 2017, the higher pre-act limit of $1,000,000 applies. Refinancing of that debt is also allowed.

Starting in 2018, the interest paid on a home equity line of credit can only be deducted if the proceeds of the loan were used to acquire or improve the home. Accordingly, if you are considering incurring home equity debt in the future, you should take this factor into consideration. If you currently have an outstanding home equity loan, be prepared to lose the interest deduction for it, starting in 2018, if the proceeds were used for something other than the purchase or improvement of your home.

Borrowers should compare home equity loans with other loan options, including personal loans, to ensure they get the best rate possible if they can’t deduct the interest paid. These changes are in effect for eight years, through 2025. In 2026, the original rules are scheduled to come back into effect.

 

Matthew R. Horowitz, C.P.A.
(410) 312-7622 • email
10015 Old Columbia Rd. Suite B-215, Columbia, Maryland 21046