Interest on Home Equity Loans Is Still Deductible, but With a Big Caveat

Interest on Home Equity Loans Is Still Deductible, but With a Big Caveat
Many taxpayers had feared that the new tax law — the Tax Cuts
and Jobs Act of 2017, enacted in December — was the death knell for deducting interest from home equity loans and lines of credit.
said, “all of the interest paid on the loans is deductible.”
But if the taxpayer used the loan for “personal” expenses, like paying off student loans or credit cards, the interest would not be deductible.
According to the advisory, the new tax law suspends the deduction for home equity interest from 2018 to
2026 — unless the loan is used to “buy, build or substantially improve” the home that secures the loan.
A home equity line of credit is more complex: Borrowers can draw on it as needed over
an initial draw period — typically 10 years — during which interest rates fluctuate.
A recent survey done for TD Bank, an active home equity lender, found
that renovations are the top use for home equity lines of credit (32 percent), followed by emergency funds (14 percent) and education expenses (12 percent).
The interest paid on that home equity loan may still be tax deductible, in some cases.