HELOC Interest

[Edsel]

I understand that HELOC interest is deductible under the new law only if used for acquisition or home improvement.  The chances are overwhelming that a HELOC was not used for acquisition, but it could be used for home improvement or anything else.

Since 1987, taxpayers have consistently been deducting HELOC interest for any usage imaginable, so long as the bank felt it safe enough to make the loan with the real estate as collateral.  Most clients are going to continue to try this, not being knowledgeable about the change in the law.

The preparer's due diligence is to determine what the proceeds were used for.  Once they find out they can't deduct it for their trip to Monaco, they will fashion reasons to tell us it was used to finance the indoor swimming pool.

How will we know the difference?  The 1098 will not tell us.

[FDNY]

You can easily verify this by inviting yourself to their next pool party.  But seriously, I’ve found this to be a big problem in the past with a few clients that are serial refinancers and always taking out more cash along with a HELOC that is over 100K. They never want to accept my explanation as how the limit works.  I know they need the cash, but the law is the law.

[joanmcq]

I always ask for the closing statements. Sometimes you’ll see a payout to ford auto finance or student loans. But when it’s simply cash out? Hard to tell. 

[David]

In my reading and research of the 2018 tax law change regarding mortgage interest I keep reading that HELOCS will no longer be deductible. I also see that home equity indebtedness will no longer be deductible.

However, other information says HELOCS used for improving a taxpayer's house are deductible. But these are various author's interpretations of the new tax law.

Which is it? I don't see anything in the actual bill that makes this clear. The bill just refers to "home equity indebtedness".

Does the term "home equity indebtedness" mean HELOCS not used to improve a house? Therefore, HELOCS that are used for home improvements are considered acquisition debt and included in the $750,000 limit?

Or does the term "home equity indebtedness" mean HELOCS regardless of the use?

Thanks for clarifying this.

[SaraEA]

From what I've read, there are going to be a million "technical corrections" to the bill before we even have regs.  For those of you who don't want to pay attention to any tax bill before it becomes law, don't even try to sink your teeth into this one because even the law is going to be tweaked over and over again.  This is what happens when you pass tax reform in a matter of weeks.  Even Regan's overhaul didn't go into effect for two years after passage, allowing plenty of time for clarifications.

[ILLMAS]

Client comes to your office in their brand new Corvette 

You:  Did you use your refinance/line of credit funds to improve your residence?

Client:  Of course

 

 

[Max W]

HELOC has always been deductible up to $100K.  If it is not used for improvements or acquisition, it  becomes an AMT preference.  So, depending on the other AMT preferences, there may or may not be any AMT.  Thus, it could still count as a full or partial deduction.

[kimjo]

I had client refinance a rental 5 years ago, noticed payoff to Nordstrom Credit Card on closing doc.  Every year now, only 81% of interest deducted.

[joanmcq]

I had one with  student loans paid off.  Became an amt preference I had to calculate each year.