2018 home equity interest

[TAX4US]

I can see a whole lot of cans of worms being opened by over zealous banks and loan managers and very creative TP's. Most of the 1098's don't break this stuff open and a lot of TP's will not remember what he did or why he did it. More ways for the service to look at us and say you should have asked MORE questions. I don't like being the scape goat. Just my 2 cents worth. Are we having fun yet?

[New York Enrolled Agent]

Was substantial in the definition of home improvement before this new law?

Well before this new law - The Revenue Act of 1987 amended §163(h)(3) to include this language [emphasis added].

(B) Acquisition indebtedness

(i) In general. The term "acquisition indebtedness" means any indebtedness which -

(I) is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer, and

(II) is secured by such residence.

[ttbtaxes]

There is nothing we'll do differently in 2018 than we should have been doing all of these years. If a client has a mortgage, home equity LOC, or a combination of the two, we've always needed to determine how much of the total debt was acquisition indebtedness. Once we know that, we can then determine the deductible interest.

The only thing different in 2018 is there will be no deduction interest on home equity indebtedness (indebtedness other than acquisition indebtedness secured by a qualified residence).

[Rapid Robert]

There is nothing we'll do differently in 2018 than we should have been doing all of these years. If a client has a mortgage, home equity LOC, or a combination of the two, we've always needed to determine how much of the total debt was acquisition indebtedness. Once we know that, we can then determine the deductible interest.

The only thing different in 2018 is there will be no deduction interest on home equity indebtedness (indebtedness other than acquisition indebtedness secured by a qualified residence).

Correct -- a good tax preparer has known that for the past 30 years, it was necessary to distinguish between acquisition and equity debt. Correct -- the definition of what is "acquisition" and what is "equity" has been in the tax code for 30 years. Correct -- a lot of the tax "reform" was just moving AMT rules into the regular tax code - no exemption, high standard deduction, no deduction for interest on equity debt, limited or no deduction for state income taxes. For those who have always said they hated getting "hit" by AMT, they now will be "hit" every year by what amounts to the same thing as AMT, except with lower overall rates.