Can I deduct my home equity loan?


Q. I had enough equity in my home that I was able to refinance my mortgage with a home equity loan, avoiding points and other complications while still getting a decent rate. Under the new tax law, it appears to me that the interest will no longer be deductible. Is this correct?
– Looking for deductions

A. Yours is a great question that’s had a lot of people confused.

The IRS issued a clarification in February with Bulletin 2018-32: “Interest on Home Equity Loans Often Still Deductible Under New Law.”

“To answer your question directly, if the proceeds of your home equity loan are used to refinance your existing mortgage, then the interest on the home equity loan is tax deductible on the first $1 million of debt – or $750,000 of debt if the original mortgage was taken out after Dec. 15, 2017,” said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton. “This is true for home equity lines of credit as well.”

Hook said what’s been eliminated is the interest deduction if the proceeds are used for anything other than to acquire, build, or improve the property.

So going forward, Hook said, if someone used a home equity line of credit on their home to buy a car, the interest is no longer tax deductible.

“Prior to the new law, interest on up to $100,000 of debt was tax deductible for calculating your regular tax,” Hook said. “It was an add-back for calculating the Alternative Minimum Tax (AMT).”

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