The Tax Cut and Jobs Act was passed in 2017, but this is the first year homeowners will be applying the new rules to pay their taxes. Under the new law, you can deduct mortgage-related interest on up to $750,000 worth of qualified loans for married couples filing jointly and $375,000 for separate filers for any home purchased after Dec. 15, 2017. The changes under the new law apply to all tax years between 2018 and 2025.
The deduction amount includes the interest you pay on your mortgage, home equity loan, home equity line of credit (HELOC) or mortgage refinance. If you took on the debt before Dec. 15, 2017, you can deduct interest on $1 million worth of qualified loans for married couples and $500,000 for those filing separately for the 2018 tax year.
Here’s another change homeowners need to know: Under the new law, you’ll only be able to deduct interest on loans used to purchase, build or substantially renovate your home. In the past, you could deduct interest even if you used your HELOC or home equity loan for non-property-related expenses, such as buying other assets or consolidating debt. Now the deduction applies exclusively to expenses related to the house.
When it comes to deducting interest for home renovation loans, homeowners will need to be on guard, too. For one, the IRS has only defined a “substantial” improvement to a home as one that adds value, prolongs its useful life or adapts a home to new use. This means homeowners who put on an addition, overhaul key structural elements or make the home more livable or accessible are likely to qualify. But those who make cosmetic upgrades may not. In a publication issued at the end of 2018, the IRS wrote that “repairs that maintain your home in good condition, such as repainting your home, aren’t substantial improvements.”
Read the entire article here:
https://www.lendingtree.com/home/home-equity/home-equity-loan-tax-deduction/
