Taxes and Your Home: New Rules to Know for Deducting Mortgage Interest

Now that the dust has settled with the Tax Cuts and Jobs Act of 2017, we thought it would be a good idea to review what is still deductible and what is not as it relates to your home(s). Be aware these rules apply through 2025, when the current tax law expires—unless Congress changes these rules before then!

Effective in 2018, if you have a home equity loan (HELOC) and used the money from the loan for something other than to buy, build or substantially improve your homes, that interest is no longer tax deductible. This applies for existing and new HELOCs. (Distinctions between investments and repairs are outlined in Publication 523, selling your home.) The debt must be secured by the home it applies to, however. So a HELOC on a first home can’t be used to buy or expand a second home.    

The Interest on mortgages is still deductible on first and second homes if they are less than a total of $750,000. However, this applies only to loans taken out in 2018 or later.  If you have existing mortgage loans totaling up to $1 million on your first and second homes before 2018, that interest is still deductible.  This $1 million limit includes HELOC balances used for home improvements.  (See IRS Release 2018-32 for more details.)

You also have to consider how these deductions fit into your total tax picture. That’s because the Tax Act expanded the standard deduction to $12,000 for singles and $24,000 for married couples.  An additional deduction of $1,600 for unmarried individuals and $2,600 for married couples is also available for those over 65 or blind.  You may find that your total deductions don’t exceed this standard deduction!  No one said figuring out taxes was easy!             


Presented by Alexandra Armstrong, CFP®

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