Home Equity Interest Deduction
Before the Tax Cuts and Jobs Act of 2017, home equity interest was largely deductible. New for 2018 the only home equity interest that is deductible is debt that was incurred to purchase, build or substantially improve the home that secures the loan.
Additionally, you can only deduct interest of total home debt of $750,000 or less. Meaning if you buy that lake home and borrow $1,500,000 you can only deduct half of your mortgage interest or the interest on $750,000.
In the past borrowing on the equity in your home was usually the cheapest way to borrow money to consolidate debt, take a vacation, or even help finance your business. This interest is no longer deductible.
How the IRS is going to track down what your home equity debt was used for remains to be seen, especially for home equity debt that was taken out years ago. It is going to be up to you to prove what the funds were used for, so make sure you are keeping receipts if you want to deduct that interest.
If you have questions, please give your CPA a call and we can help make sure you get the deductions you are eligible for.
Karena Sylvester, CPA