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Level 1

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

I think it's straightforward.  Since 1st Mortgage interest is deductible, but HELOC interest no longer will be, will it be allowable to roll the HELOC into a new first and deduct all the interest?

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Level 20

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

No.  

Acquisition debt is the debt you incurred to buy or remodel the home.  Equity debt is everything else.  Even if you combine them in one loan, your interest is only deductible on the part of the new loan that is equal to the balance of the first mortgage (your acquisition debt) on the day you rolled it into the new loan.  

19 Replies
Level 20

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

I don't know of any lender that does that. But I think you mean to ask if you can refi the property to pay off both the first mortgage and the HELOC. The answer is yes, and I'm sure your lender wouldn't have a problem with that. Under the new law, all mortgage interest on an outstanding mortgage balance under $750K is deductible.
Level 20

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

Have not seen any specs on it yet but I bet the form 1098 will be redesigned again to catch this kind of hanky panky.
Level 20

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

I myself haven't got to anything yet in the bill which I've been reading through off and on the past few days, that covers refi's for this specific situation. Can't even say if it's covered or not really.
Level 20

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

Well to make things more interesting is if the extender bill ever gets thru congress  ...  LOL
Level 20

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

Well you know what they say!
He who claims to understand the situation and all aspects of it, is obviously not paying attention!
Level 1

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

The IRS just published an article on 2/21/2018 clarifying the deductibility on interest on Home Equity Loans and HELOCs.  If the HELOC was used for home improvement, it looks like it will still be deductible.  It appears that one critical point in the new law (other than the new lower limits) is how the funds are (or were) used.  Here is the article: <a rel="nofollow" target="_blank" href="https://www.irs.gov/newsroom/interest-on-home-equity-loans-often-still-deductible-under-new-law">htt...>
Level 20

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

No.  

Acquisition debt is the debt you incurred to buy or remodel the home.  Equity debt is everything else.  Even if you combine them in one loan, your interest is only deductible on the part of the new loan that is equal to the balance of the first mortgage (your acquisition debt) on the day you rolled it into the new loan.  

Level 1

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

Well to the extent the home equity line was used for remodeling it should be deductible then right?  Whether or not I roll it into a new first mortgage?
Level 1

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

Also, to complicate matters, in refinancing, I will be buying out my ex who is still on the title and on the mortgage.  My additional debt for the buyout will undoubtedly be deductible, no?
Level 20

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

Assuming that you are refinancing a joint mortgage, the amount of the new loan that would be considered "acquisition debt" would be the amount of the prior purchase mortgage, plus any equity payment to your ex, plus any amount that was used to remodel the home.  Any amount over that will be considered equity debt.
Level 1

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

Can major repairs and maintenance, e.g. rebuilding decks, painting, new retaining walls, fence replacements count as remodeling?
Level 20

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

This will be interesting next year when the banks have to report this on the new form 1098.
Level 20

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

Acquisition debt is "a mortgage that you took out to buy, build, or substantially improve your principal residence and that is secured by that residence."

The key term is "substantial improvement."  The IRS defines this as

"An improvement is substantial if it:
Adds to the value of your home,
Prolongs your home's useful life, or
Adapts your home to new uses.
Repairs that maintain your home in good condition, such as repainting your home, are not substantial improvements. However, if you paint your home as part of a renovation that substantially improves your qualified home, you can include the painting costs in the cost of the improvements."

An improvement is something that extends the useful life of the property or increases its value.  Also known as a "betterment" in some documents.  Contrasted with a repair, which restores property to an as-was condition, or maintenance, that maintains the property in as-is condition.

Painting is a repair or maintenance and is not a substantial improvement (although obviously, if you build an addition, painting will be part of the cost.)

Fence and deck might be a repair or an improvement depending on the nature of the work.  A new retaining wall would be an improvement, but not repairs to maintain an existing retaining wall.

Then, once you know if you have an improvement, you have to decide if it is "substantial."  The definition above, which comes from IRS publication 963, is very broad.  The actual internal revenue code doesn't define "substantial" at all.  Elsewhere in the federal code, a "substantial improvement" for purposes of the flood insurance program must cost at least 50% of the value of the home before the work started.

As you determine how the money you borrow is spent for maintenance, repairs, and "substantial improvements", be sure to keep records for as long as you own the house plus 7 years after you sell.
Level 1

Can I roll my HELOC into a First Mortgage and deduct all the interest under the new law?

Wouldn't "Prolong's your home's useful life" include things like replacing a roof, repiping a house, rewiring a house, or replacing termite damaged wood?  These could easily be called repairs, but they would typically be very large repairs that definitely prolong the useful life of the house.