"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 (Sec.
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.
