When Is HELOC Interest Tax Deductible?
TCJA has amended the rule of tax deduction of interest paid under HELOC. In the past, a HELOC was treated separately from home mortgage and the interest expense on HELOC up to $100,000 (single or married filing jointly) was tax-deductible no matter how the money was spent.However,under the new law, the interest on HELOC money is tax deductible only if it is used for capital improvements to a home and it is within the home loan debt limit.
Home Loan Debt Limit
After Tax Cuts & Jobs Act (TCJA ) the limit on deductible interest for your home mortgage stands at $750,000 for tax years 2018 through 2025 if you are single or married filing a joint return ($375,000 for married filing separately). However, if your mortgage loan originated before December, 15, 2017, you can still be able to deduct the interest up to $1 million of debt.($500,000 in case of married filing jointly)
What does or does not qualify for the deduction?
It must be clear to you that under the new law the interest on HELOC is tax deductible only if the loan is used for your home improvements like
adding solar panels , repairing walls , replacing the roof, or remodeling a kitchen or bathroom. But if you use the HOLEC for any other reason, interest related to such use us not deductible.
Record Keeping for HELOC Interest
Since the rule for deduction of interest paid under Home Equity Loan Credit or HELOC is conditional , it is imperative to maintain proper records of all expense on home improvements with backing of all receipts .