Home Equity Loans and the TCJA
Do you have a home equity loan? Be ready at tax time when your CPA asks you how you used those loan proceeds. Thanks to the new tax law known as the Tax Cuts and Jobs Act (TCJA), the deductibility of interest on home equity loans and lines of credit has changed.
Prior to the TCJA, homeowners could deduct home equity interest on loans up to $100,000 regardless of what the funds were used for. TCJA changed that and now only home equity interest on funds used to acquire, build or substantially improve your home is deductible.
So…if you took out a home equity loan or home equity line of credit and used the proceeds to finance college, a trip, or consolidate bills, you cannot deduct the interest paid on your 2018 income tax return.
You will need to give your CPA a breakdown of how you spent the loan proceeds if part of a home equity loan or line was used to acquire, build or substantially improve your home, and part was used for something else.
Honorine M. Campisi, CPA