Interest Deduction on home loans under the New Tax Law : GKM Inc – Blog

Interest Deduction on home loans under the New Tax Law

Posted by:   |  Jul 17, 2018  | Post comments

The Tax Cuts & Jobs Act made significant changes to the home mortgage interest deduction that may affect the amount of your home loans eligible for the deduction and whether you can deduct the interest you pay on a home equity loan or line of credit.
The changes are temporary – they begin in 2018 and end in 2025.
The Act reduced the dollar limit on home loans that qualify for the home mortgage interest deduction to $750,000 ($375,000 for married couples filing separately). This change only new loans.
The earlier $1 million limit ($500,000 for married couples filing separately) still applies to home loans incurred before Dec 15, 2017.
If you were in the middle of purchasing your main home in December 2017, please check on which limit applies to you. The Act allows individuals who entered into a binding written contract prior Dec 15, 2017 to use the earlier $1 million limit in certain circumstances.
The limit applies to the combined amounts of loans (mortgages, second mortgages, home equity loans, and home equity lines of credit) that you use to buy, build, or substantially improve your main home & second home.
If you refinance a loan incurred before Dec 15, 2017, you can still use the $1 million limit as long as your new loan does not exceed the amount of loan being refinanced.
Beginning 2018, you can only deduct the interest you pay on a home equity loan or line of credit that you use to buy, build, or substantially improve the home that secures the loan. You can no longer deduct the interest if your loan or line of credit is used for personal expenses, such as paying off credit card debt, paying college tuition, or buying a new car.
There are other requirements that need to be met for the interest to be tax deductible, such as the loan must be secured by your main home or second home and not exceed the cost of the home.
Deduction of interest on home loans is only possible if deductions are itemized. If your new standard deduction is larger than the total of your itemized deductions, you will receive a larger deduction if you claim the standard deduction instead of itemizing your deductions.
The standard deduction for 2018 is $12,000 for single filers and married persons filing separately, $18,000 for heads of households, and $24,000 for married persons filing jointly. Taxpayers who are blind or aged 65 and older can claim an additional standard deduction of $1,300 if they are married for $1,600 if they are single.
Please consult your tax advisors at GKM for advice on your personal situation.