Strategies for Your Mortgage Interest Deduction in 2018

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A last minute change in the new tax plan caught me off guard. Let me clear that up first. It’s not “primary residence interest” that is solely deductible now. It’s “qualified residence interest.” That one word difference (primary changed to qualified) means that vacation homes are back deductible! You still have the same limitations, though. Read on.

If you have existing properties and mortgages, you’re limited to the interest on $1,000,000 of debt. For new properties, the limit is $750,000 of debt.

If you refinance, you’re still subject to the same limitations, based on when you bought your property.

Besides the lower mortgage amount, there is another issue with home equity loans. They aren’t deductible. There is still confusion on whether an existing HELOC interest will be deductible. The Act actually has a reference to a line that doesn’t exist. New equity loans definitely aren’t deductible. And if you have an existing line of credit and pull the money out it won’t be deductible either.

If you have an equity loan because the loan has been paid down over time, and it merely brings you up to the original indebtedness, you could refinance into just one loan and take the deduction. Otherwise, it appears that you can still use the equity loan to fund investments or your business and be deductible. The problem is if you use the equity loan to pay for personal items, not business or investments.

Stay tuned! There are a lot of changes still coming.

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