"The high interest rate on home equity debt
is going to exasperate the situation," Bryant warned.
The Act disallows interest on home equity debt
for tax years beginning after 2017 and before 2026.
As previously reported in the April 2018 edition of the CPA Client Bulletin, the Tax Cuts and Jobs Act of 2017 affected the tax deduction for interest paid on home equity debt
as of 2018.
Along these lines, if you're a couple filing jointly, you can also deduct the interest you pay on up to $100,000 in home equity debt
Other loans, also secured by a home but not necessarily used for any specific purpose, are considered home equity debt
. The interest paid on home equity debt
is tax deductible for balances up to $100,000 ($50,000 for married taxpayers filing separately).
households have mortgage and home equity debt
and 38% hold credit card balances.)
When choosing between a home equity loan or a student loan, keep in mind the following limitations: (1) Interest on home equity debt
is deductible only if you itemize and then only on the first $100,000 of debt, and not at all to the extent you are taxed by the alternative minimum tax; and (2) student loans must be single-purpose loans.
There are two types of home mortgage debt that produce deductible qualified residence interest: acquisition debt and home equity debt
For many years, courts and the IRS interpreted the tax code to limit your deduction to the interest on up to $1 million in debt used to buy, build, or improve your home, while allowing you to deduct interest on an additional $100,000 in home equity debt
only if it was not used to acquire the home.
It shows that from 1998-2007, small-business-owning households took on larger amounts of home equity debt
faster than households headed by someone employed by others.
Problems cited by tax practitioners and in our review of articles on deducting home mortgage interest included the following: (1) Taxpayers need to distinguish between acquisition and home equity debt
but did not always do so.
Moreover, you can deduct the interest on as much as $100,000 worth of home equity debt
. As long as the house has the equity and the debt is secured by that amount, the Internal Revenue Service does not care what you do with the borrowed money.