HELOC Interest Deduction

[richardkwong9866]

When I bought my home in 2005, I took out a first mortgage and a HELOC.  The money was used only to purchase the home. Is the interest from the HELOC still deductible?

[KathrynG3]

It depends. From what you wrote, it sounds like your HELOC was used for the home that was purchased.

References for more details:

Article from TurboTax: Which federal tax deductions have been suspended by tax reform?

• Interest on home equity loans or lines of credit are still deductible, but only if the loan is used to buy, build, or substantially improve the home and the total mortgage doesn't exceed $750,000.

  If the loan proceeds are used for something else (for example, to pay off debt) in 2018–2025, the interest is not deductible.

Please see the guidance below from IRS Publication 936 Home Mortgage Interest Deduction page 1 and 2:

• No matter when the indebtedness was incurred, you can no longer deduct the interest from a loan secured by your home to the extent the loan proceeds weren't used to buy, build, or substantially improve your home.
• Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan. As under prior law, the loan must be secured by the taxpayer’s main home or second home (qualified residence), not exceed the cost of the home, and meet other requirements.

[richardkwong9866]

The HELOC was used on the original purchase of the home.  The home was our main home.  The funds were not used for any other purpose and were paid directly to the seller/builder.  The home loans (first mortgage and HELOC combined) totaled around $400,000.

[VictoriaD75]

Yes. As you have described, the interest on your HELOC will still be deductible in 2019.

[NCperson]

but careful.... since it is a HELOC, if you paid down the balance and then withdrew money to increase the balance, those interests amounts related to the increased balance withdrawals would not be tax deductible UNLESS the money was used to substantially improve the home.  it would be considered a form of 'cash out'