Tax Deductions

Are home equity loans tax deductible after TCJA?

By Prashant Thakur
Are home equity loans tax deductibleHELOC or a home equity line of credit , is a line of credit allowed by the lender against your home. This ( heloc mortgage loan ) is a revolving credit line . You can use it  for large expenses or to payback  higher-interest rate debts such as credit cards because it often has a lower interest rate than some other common types of loans. And second good thing about is about loan interest tax deduction- because interest paid on HELOC is tax deductible but there are conditions and limits on deductions.
 

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 .

Prashant Thakur179 posts 48 comments

    Prashant Thakur is a tax advisor . He has written two books on tax laws of India. He regularly writes on his paid-only website http://taxworry.com. He is learning about the Internal Revenue Code of USA as many of clients and readers are of India origin and also are tax resident of USA . So . solving their tax issues require reference to IRC of USA.

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