The Internal Revenue Service (IRS) has issued a news release (link is external) clarifying that in many cases, interest paid on home equity loans remains deductible under the new tax reform law. Many questions have arisen on this issue, as many media reports on the new tax law indicated that as of 2018, interest is no longer deductible on home equity loans. The IRS stated that “despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labelled.” The key factor is that the proceeds of such loans must be used to buy, build, or substantially improve the taxpayer’s home that secures the loan. Interest on a home equity or other loan used for personal living expenses (e.g. paying off credit card debt, education, or vacation expenses) would not be deductible.
The news release offers several examples.
For more information on tax reform, visit NAR’s homepage on the issue.