The Tax Cuts and Jobs Act (TCJA) made significant changes to the tax law. One of the many changes is the deductibility of home mortgage interest. Before the change, taxpayers could deduct mortgage interest on debt up to $1,000,000, plus an additional $100,00 for home equity debt. The IRS interpreted this to mean interest on debt up to $1.1 million could be deducted.
Under the TCJA, the mortgage interest deduction is now limited to interest on debt up to $750,000, with no additional amount for home equity. While this was originally thought to mean interest on home equity debt could no longer be deducted at all, the IRS has clarified that interest on home equity debt is still deductible. However, the proceeds from the home equity loan must be used to build, buy, or substantially improve the home that secures the loan. In other words, taxpayers cannot take out a home equity loan and use the proceeds for another purpose (i.e. pay off credit card debt), if they want to deduct the interest.
It is also important to note that the new limitations apply only to new acquisition debt. Taxpayers who purchased their homes prior to December 14, 2017 may still use the old limitation of $1,100,000 to deduct their mortgage interest.
If you have any additional questions, please contact Rebecca Bischoff, CPA at 314.576.1350 or email@example.com.