2018 home equity interest

[Kram BergGold]

Home Equity interest not traced is no longer deductible starting in 2018. Is this true, even if the loan proceeds are used to improve that home? I believe this is the case but I need to be sure.

[TaxGuyBill]

Mortgage interest to buy, build or substantially improve the home is still deductible (up to the $1,000,000/$750,000 limits).

It does not matter if the loan is called a 1st mortgage, 2nd mortgage, Home Equity Loan, Line of Credit, or whatever else. The mortgage interest to improve the home is still deductible (up to the limits).

[JON]

Helco

HELCO loan interest I believe on/after 1/1/18 is not deductible. I originally thought you could trace, but I have been convinced now no such luck. The bill in the House, Senate and what came out of the conference committee and signed by the President all had the same language and none made reference to making the HELCOs traceable and deductible, only made it not deductible.

All mortgages may need tracing - statement from the clients is what I need no tracing.

[Rapid Robert]

Cheers to TaxGuyBill for making the best comment in this thread, the other two, I'm not sure they're accurate. I do know the IRS has a publication all about home mortgage interest, I'm pretty sure they define acquistition debt and equity debt in that publication.

[TaxGuyBill]

Deleted: Posted in wrong thread.

[TaxGuyBill]

If you want the legal gibberish and reasoning, here it is:

Starting in 2018, §163(h)(3)(F) has the "Disallowance of home equity indebtedness interest".

§163(h)(3)(C) says "The term “home equity indebtedness” means any indebtedness (other than acquisition indebtedness) secured by a qualified residence ..."

§163(h)(3(B) shows "The term “acquisition indebtedness” means any indebtedness which—(I) is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer"


In other words, the disallowance is for interest is for amounts not used for "acquiring, constructing, or substantially improving" the home.

[JON]

I think the new act will overrule, if specifically states no interest deduction for HELCOs. Some of what you quote explains what resident interest is and tracing, and maybe it will be adjusted, but the act passed before and after states NO deduction for HELCOs.

Tracing and mortgage interest are still there for MORTGAGES not HELCOs. Technical Correction would be nice - has to pass the HOUSE and SENATE and signed by the President. REGs could follow - in 20 years per the IRS. Lenders are fine with it. Can an acquisition/improvement HELCO but refinanced as a mortgage and get the deduction. I believe the lenders are saying maybe. The dates seem to make it difficult. They can make money.

Lots can change, but I have become convinced for now previous regs do not work when it says now NO DEDUCTION for HELCOs.

It was actually a mortgage banker and a tax forum and seminar who convinced me of the wording in the tax act.

Even look in TTBs recap and I do not see any exception - home equity debt is gone, It does not say trace it back to see how you incurred it.

Just my opinion.

[Rapid Robert]

I think the new act will overrule, if specifically states no interest deduction for HELCOs.

It was actually a mortgage banker and a tax forum and seminar who convinced me of the wording in the tax act.

What do you mean by "if"? The new law is clear, and in no way does it specifically mention HELOCs. Feel free to prove me wrong.

Anyone who thinks that HELOCs receive some special treatment under the new law should really consider upping their annual CPEs, as they don't seem to understand the long-standing definitions regarding acquisition and equity debt.

Also, everyone else calls them HELOCs, not HELCOs. What is your version supposed to stand for?

"Just my opinion. "

I think you should be able to actually paste actual text from the actual law that backs up your claim. Or you could just check TaxGuyBill's previous post.

[JON]

"IT", sorry. Look at TTBs recap or the bill. The regs you refer to will be used for tracing and deciding on the deduction for Mortgage Interest. Re-mortgage to take care of that credit card debt, etc -still be there to test, but not for "home equity loans". You will not receive 1098s for 2018 on HELCOs, unless something gets changed.

Tracing was there and will still be there, except its only use is for mortgages, not HELCOS.

A local guy in politics when asked about it - said it was a compromise to keep mortgage interest in as a deduction. The standard deduction was doubled he said.


That is more than just my opinion, and you can have your. Something would have to be changed before I would agree HELCO even makes it to tracing after 2017, although at first glance I was on your side. Nowhere does it say HELCOs are OK to be called or tested for acquisition debt.

Argue with TTBs authors. They are also clear on what they think.

[New York Enrolled Agent]

I think the new act will overrule, if specifically states no interest deduction for HELCOs. Some of what you quote explains what resident interest is and tracing, and maybe it will be adjusted, but the act passed before and after states NO deduction for HELCOs.

This is what the new act ACTUALLY SPECIFICALLY says:

‘‘(i) IN GENERAL.—In the case of taxable years beginning
after December 31, 2017, and before January 1, 2026—

‘‘(I) DISALLOWANCE OF HOME EQUITY INDEBTEDNESS
INTEREST.—Subparagraph (A)(ii) shall not apply.

‘‘(II) LIMITATION ON ACQUISITION INDEBTEDNESS.—Subparagraph
(B)(ii) shall be applied by substituting ‘$750,000 ($375,000’ for ‘$1,000,000
($500,000’.

Subparagraph (A)(ii) is "eliminated" for tax years 2018-2025.
No where in the act is any reference to HELCOs, HELOCs or any other type of similar loan. The type of debt known as home equity indebtedness is now "out" - the borrowing instrument be it a mortgage or line of credit or whatever doesn't make the determination of the type of debt - the use of the money does. Re-read TGB's code sections - he's got it right

[Rapid Robert]

"IT", sorry. Look at TTBs recap or the bill.

I did. They agree with the law the way it is actually written. "Home equity debt (any debt secured by the residence that is not acquisition debt)"

Of course you will get 1098s for any kind of residential mortgage for 2018. The banks will report exactly the same as they did the year before.

You are also disagreeing with TaxGuyBill. I really feel sorry for your clients if you deprive them of legitimate interest deduction because you don't understand the new law (and maybe not the old law either).

You still can't even explain what HELCO is supposed to stand for.

edit - and I see you are disagreeing with New York Enrolled Agent also. Let readers make up their own minds about how reliable your interpretation is.

[Kram BergGold]

HE used for HA is still deductible

Because of the disagreement on this question I searched out an answer. I found two reputable sources that say money borrowed against a house for substantial improvements to that house is considered part of home acquisition cost and interest is deductible on the first $750k of total acquisition debt. I am glad I asked this question so more of us would understand this. The problem I see is parsing out the money borrowed 10 years ago that was used for home improvement, to buy a car, to pay down credit card debt and what constitutes substantial improvement.

[New York Enrolled Agent]

. The problem I see is parsing out the money borrowed 10 years ago that was used for home improvement, to buy a car, to pay down credit card debt and what constitutes substantial improvement.

That question should have been asked 10 years ago or at any time there was borrowed money.

Home Equity Indebtedness (subject to the $100K limitation) was fully deductible for regular tax purposes. However, it was a preference item for AMT - the use of the borrowed funds should have been a topic for discussion.

[Kram BergGold]

Substantial

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

[JON]

I apologize for calling Home Equity Line of Credit(HELOC) - it is referred to in the bill as home equity indebtedness, I think I am close here it states something like "interest on home equity debt is suspended". If that does not apply to home equity loans then you are correct. What debt are they referring to then? Did they really mean it applies only to the extra $100,000 that did not have to be used for acquisition or improvement, or as you have previously stated it does not apply to all home equity debts that can be traced to acquisition or improvements. You guys may be right and I argued that up to a month ago, when I could not show anyone that there was an exception to some home equity debt that could be still qualified mortgage interest.

If we get a 2018 1098-INT for qualified mortgage interest for Home Equity Debts you will be right. As my banker friend said - "your leaving that up to us" and I said I will need it if I can use it on the return.