March 11th, 2022 3:24 PM by Shawn Smith NMLS#863501
As we’ve been talking about HELOCs and other home financing options, I’ve mentioned that the interest you pay may be tax deductible. Here is some general information about potential tax deductions, but of course you’ll still want to talk with your tax pro.
Whether or not you can claim interest expense on your home loan will depend on how you use the money and how much you borrow. Let’s take a look.
What can you claim?
To be eligible for an interest deduction, the proceeds of your home loan must be used to construct, purchase or substantially improve a qualified residence. This is considered “acquisition debt.”
Borrowers often use home equity lines of credit (HELOCs) to finance expenses unrelated to their homes, such as vacations or college educations. HELOCs are still available for these types of expenditures, yet some of the tax advantages have been removed.
How much can you claim?
You can claim interest expenses on acquisition debt of up to $750,000 for a home financed after December 15, 2017. This means if you itemize expenses on your taxes, you can deduct the interest expense you pay on up to $750,000 of home-related loans. If you have more than one loan—a primary mortgage and a qualified HELOC, for example—you can deduct interest expense on up to $750,000 of the combined loan amounts.
Borrowers can deduct interest expense on up to $1 million of acquisition debt incurred on or before December 15, 2017. When debt is refinanced, it is treated as having been incurred on the original date, and interest paid on up to $1 million of the refinanced loan may still be deducted.
Is a HELOC still right for you? If you’d like to talk about it, please reach out when you’re ready.
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