The only type of home mortgage interest that is tax deductible in 2018 is interest on up to $750,000 of loan proceeds used to buy, build or improve a qualified home. The $750,000 is aggregate total for both qualified homes(one primary home + one vacation home). For more details, see my article called, “When is Mortgage Interest Tax Deductible.” Here are five ways this change may impact your home loan strategy:
- Debt Consolidation Loans – the interest on the “cash-out” proceeds or home equity loans used to pay off other debt that was not used for home improvement is no longer tax deductible
- Vacation Home Loans – it may not be a smart idea to use a “cash-out” mortgage or home equity line of credit on your primary home to buy a vacation home. Instead, you may want to consider placing a mortgage on the new vacation home when you buy it so that it can be treated as “acquisition indebtedness” for tax purposes.
- Home Improvement Loans – the interest on a “cash-out” mortgage or home equity lines of credit is generally still deductible if you are using the funds for home improvements. There are certain rules and timelines that need to be followed to make this work.
- Refinancing an “Acquisition” Mortgage Closed on or Before December 15, 2017 – there may be no need to worry about losing your tax deduction if you refinance an old loan that was used to buy, build or improve your home. That’s because the interest on your new home loan is generally still tax deductible on balances up to $1mm if the new loan balance is the same as your current loan balance.
- Refinancing an “Acquisition” Mortgage Closed After December 15, 2017 – the interest on your new home loan could be deductible on balances up to $750,000 if the loan balance is the same as the old loan balance. If you are increasing your mortgage balance, you may want to use the funds for home improvement to keep your tax deduction on that portion of the loan.
Be sure to check with a CPA for more details about how these changes may impact your specific situation.
PLEASE NOTE: THIS ARTICLE AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936.