The most recent changes to federal income tax law under the Tax Cuts and Jobs Act of 2017 (TCJA) have created a bit of confusion within the real estate investor community. A common point of confusion is whether or not the interest from a home equity loan can be deducted related to rental property. In general, the answer is – YES! Below is additional detail regarding the impact of the new tax laws on home equity loans or home equity lines of credit (HELOC).
Old Tax Law: Deducting Home Equity Interest
Under the old tax law, home equity loan or HELOC interest was deductible by a taxpayer regardless of how the distributed funds were used. This meant that a home equity loan or HELOC could be used for many personal expenses such as automobile purchases, college funds, payment of credit card debt, vacations, medical expenses, home improvements on primary residence, etc. The old law also permitted the use of home equity loans or HELOCs to purchase investment properties. The uses of funds were virtually limitless in terms of not affecting the deductibility of the interest. The only major difference for most taxpayers was whether they claimed the interest as a personal expense or a business/investment expense on their returns.
New Tax Law: Deducting Home Equity Interest
What changed for home equity loans and HELOCs under the new law? In general – interest related to distributions from home equity loans and HELOCS are only deductible if used for business or investment purposes. Therefore, interest paid related to a business or investment property will still remain a deductible business expense. However, there are exceptions in which the interest is still deductible for personal purposes such as if the equity loan or HELOC secured by a qualified primary or vacation home is used to “buy, build or substantially improve” such residence. Other “grandfather” provisions exist for home equity loans and HELOC debt acquired before December 16, 2017.
If you or someone you know in the Raleigh, NC area needs help with any IRS or NCDOR tax issues related to home equity loans or HELOCS contact me so that I can help. I can be contacted by phone at (919) 792-8511 or you can email me directly using this link.
Lauren Massie
Lauren Massie, CPA, PLLC
8480 Honeycutt Road, Suite 200
Raleigh, NC 27615
(919) 792-8511
Lauren Massie, CPA, PLLC serves clients in North Carolina throughout the Greater Triangle Area including cities such as Raleigh, Wake Forest, Cary, Durham, Chapel Hill, Hillsborough, Youngsville, Franklinton, Garner, Knightdale, Zebulon, Angier, Clayton, Louisburg, Henderson and Wendell.
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