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By Leila Lajevardi • June 22, 2018

What do New Laws Mean for Interest on Home Equity Loans?

The passage of the Tax Cuts and Jobs Act has left taxpayers wondering and confused as to what this means for interest on home equity loans. Following its ratification on Dec. 22, the Tax Cuts and Jobs Acts suspends the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.

The deduction, however, does not come without bylines. The loan must be secured by the taxpayer’s main home or second home (known as a qualified residence) and must not exceed the cost of the home.

Additionally, the new law imposes a lower dollar limit on mortgages qualifying for the home mortgage interest deduction. Beginning in 2018, taxpayers may only deduct interest on $750,000 of qualified residence loans. The limit is $375,000 for a married taxpayer filing a separate return. These are down from the prior limits of $1 million, or $500,000 for a married taxpayer filing a separate return. The limits apply to the combined amount of loans used to buy, build or substantially improve the taxpayer’s main home and second home. Visit the IRS website for any further questions regarding the effect of the Tax Cuts and Jobs Act.

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