January 23rd, 2019 12:24 PM by MARGARET MICHELLE WILLIAMSON
Because of recent changes, equity loan
proceeds are deductible only under specific conditions. When the proceeds from home equity loans (including
second mortgages, equity credit lines or some refinancing’s) are used to buy,
build or substantially improve the taxpayer’s primary home that secures the
loan, the interest on these loans is fully deductible in many cases. All
mortgages and equity loans (that meet the above criteria) up to a combined
total of $750,000 are deductible. Note that some state laws restrict home
For example: In January 2018, you took out a $400,000 mortgage on your
primary home that has a fair market value of $800,000. In February 2018, you
took out a $250,000 home equity loan to put an addition on your primary home
and make other improvements to the home. Because both loans are secured by the
primary home and the grand total of the loans ($400,000 + $250,000 = $650,000)
does not exceed the value of the home ($800,000) and the total of all loans
does not exceed $750,000, all of the interest paid on both loans is deductible.
However, if any of the proceeds from
home equity loans are used for reasons other than to buy, build or
substantially improve the taxpayer’s primary home, the interest is not
deductible. In another example, if you use home equity proceeds to pay for a
child’s college tuition, a new car, medical bills, other debt, you cannot
deduct the interest.
This is just an introduction to a
complex financial topic. For more details on what you cannot deduct, consult a
qualified financial professional.