Is Home equity interest deductable in 2018 if used for replacement propane hot water heater .

[muskrat4]

non business tax credit is still under review . However looking to determine the interest on my home equity line to pay for the water heater is deductable for 2018

[BMcCalpin · Accepted solution]

I would say, “yes”, with the caveats below.

As you know, whether or not home equity interest is deductible in 2018 was a subject of the tax law changes in the Tax Cut and Jobs Act of 2017.

The law specifies that you can deduct home equity mortgage interest if the interest was used to "buy, build, or substantially improve" the home. "Substantially improve" means that you made an expense that needs to be capitalized as opposed to expensed. See Instructions for Schedule A.

I am assuming that you removed the old water heater and replaced it with a new one.

Note that if you treat the water heater as a capital improvement (as it would be if it were in a rent house), that you should add the cost of the water heater to your basis in the house, so that it will reduce your gain if and when you sell the house. This is because the water heater is not treated as an appliance (like a refrigerator) but as part of the house (like the HVAC).

Of course, you are also subject to loan size limits; this was reduced to loan size of $750,000 on December 16, 2017. Check to make sure that the sum of the loans on your home does not exceed $750,000 if your HELOC was taken out on December 16, 2017 or later.