easytax Posted February 24, 2018 Report Share Posted February 24, 2018 New law is clear (for new loans, etc.) --- HOWEVER -- please confirm that anything prior to 2018 is STILL deductible (and will be able to be itemized - given limits, etc.) under old rules because new law says / The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan. The word "ARE " is different from "WERE"; so "WERE used" is not affected and still usable. That covers NEW loans BUT nothing speaks to existing loans (prior to 2018); therefore existing loan interest should still be deductible? Please confirm or help me understand why not. OR, is it possibly too early to know till more guidance is issued from feds? Thanks in advance. /// ALSO, Abby, if you do the "course" at Rita's are you going to web cast for those who do/can not make the trip? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 24, 2018 Report Share Posted February 24, 2018 Yes, the interest on home equity loans and HELOCs already in place will still be deductible, up to the limitations, IF the proceeds were used to buy, build, or substantially improve the residence or second residence. This is because the "buy, build, or substantially improve" is part of the definition of "acquisition debt" that was already contained in existing tax law, and acquisition debt will continue to be deductible. Keep in mind lenders use the term "home equity" in the title of products they offer (home equity loans and lines of credit) but the tax code's definition of the term "home equity debt" shown below specifically says that if the debt qualifies as home acquisition debt, then it is NOT home equity debt. This is why the interest on home equity loans and HELOCs NOT used to buy, build, or substantially improve will be nondeductible starting this year. Quote Home equity debt is: a mortgage taken out after 10/13/87 does NOT qualify as home acquisition debt or grandfathered debt, and is secured by the qualified home Quote Link to comment Share on other sites More sharing options...
easytax Posted February 25, 2018 Author Report Share Posted February 25, 2018 Thanks Judy. Even with your reply it took me a while to "wrap my head around" this. (senility is wonderful). Basically no grandfathered loans (just because money was allowed as a HELOC and deductible in the past --- does not mean now. I was trying to read into the new law that all prior to 2018 was allowed with the starting 2018 (new loans) being the only ones under the new law. Finally, I understood ----- basically the government even with what might be an implied contract (NOT POLITICAL -- ALL government) changed the "terms" in mid-stream (so no grandfathering) going forward to the terms they (government) wanted. MUST be nice to be the government and change what you want regardless of what was assumed. (I know what does "ass u me really mean. Thanks agin. cloud lifted and rant over. Be well, Ed. Appreciate the patience 1 Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 25, 2018 Report Share Posted February 25, 2018 One interesting wrinkle that I read about several days ago. Scenario: Two houses - First is the taxpayers home borrowed $500,000, second is a vacation home borrowed $250,000 so the combined amount is within the $750,000 limitation. 1. Taxpayer has a 1st mortgage of $500,000 secured by home # 1 and another 1st mortgage of $250,000 secured by home # 2 resulting in all mortgage interest being deductible. 2. Taxpayer has 1st mortgage of $500,000 secured by home # 1 and 2nd mortgage of $250,000 also secured by home # 1 but the proceeds were used to buy home # 2, in this case only the interest on the first mortgage is deductible because the 2nd mortgage proceeds used to buy home # 2 was not secured by home # 2. 1 1 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 25, 2018 Report Share Posted February 25, 2018 Thanks for the reminder, cbslee. I'd posted that IRS release with the examples you are talking about, and the forum is so active now that it's already dropped in the postings. The pinned post at the top of general chat with resources on the JCTA now also contains a link to the IRS statement, and for those that don't trust links to the outside, I included a link to my earlier topic on this forum that has the entire text of the IRS release including the examples. 1 1 Quote Link to comment Share on other sites More sharing options...
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