Are Home Equity Loans Still Tax Deductible?
The Tax Cuts and Jobs Act of 2017 has reduced a number of tax breaks for homeowners, which may have you wondering about its impact on home equity loans. While all home equity loans were previously tax deductible before the new tax law, it will now depend on what exactly the loan is being used for. Here’s a simple breakdown of what the tax reform means for your home renovations.
What follows is general guidance. You should always consult a tax professional for your personal situation.
How Your Financing is Used Matters
The good news is that when planning a major home renovation project, the interest paid on your renovation home equity loan is still tax deductible. But you have to use if for your actual renovations, since these major changes substantially improve the home that secures the mortgage. Home equity loans will no longer be deductible if the loan is being used for personal items like vacations, tuition, credit card debt, cars, clothing, etc. So as long as your renovation home equity loan is being used to meaningfully improve your home, you can benefit from deductions like in the past.
New Interest Deduction Limits
There is a new limit to be aware of so that you can deduct the interest from your renovation home equity loan. For married couples, mortgage interest on total principal of up to $750,000 of your home equity loan can still be deducted, which was reduced from $1,000,000 pre-tax reform. For single homeowners, the magic number is now $375,000; down from $500,000. So as long as your loan doesn’t exceed that amount, you can still deduct the interest paid.
Your Residence Must Qualify
Last, but not least, your renovation home equity loan must be on a qualified residence; which usually means your primary home or second home. Simple enough.
So while many taxpayers will see differences in their taxable income calculations this year, the good news is that you can still benefit from deductions on the financing you need to make your renovation dreams come true! Contact RenoFi to discuss the details of your future renovation project and the financing options available.
Other information you may be interested in...
- Why are Fannie Mae Homestyle loans better than FHA 203Ks when renovating? - We walk through the notable differences that make Fannie Mae Homestyle Renovation loans the better choice over an FHA 203K for many homeowners when planning to finance a renovation.
- 3 Reasons Why You Shouldn’t Rely On An FHA 203K Loan for Purchasing & Then Renovating - Before you jump into an FHA 203K loan to finance the purchase and renovations of your new home, you should hear how this once very popular option actually kinda sucks in today’s market. We’ve got three reasons for you.
- Home Equity Loan Requirement Checklist - Realizing that it’s possible to turn your current home into a home you love is a great feeling. Discovering the smartest way to do it through a renovation home equity loan is even better. We'll help you gather everything you need to apply.
- How to Qualify for a Home Renovation Loan - Did you recently discover that a renovation home equity loan is the best way to fund your renovations? We’ll walk you through the key factors that lenders consider, so you know what to expect when you apply.
- 3 Reasons Why You Shouldn't Use a Construction Loan for Your Renovation - Has someone told you the best way to finance your home renovation is with a construction loan? Well, if so, you’ve been given bad advice! You have options - options that enable you to borrow based on what your home will be worth after the renovation!