Author Topic: HELOC interest question  (Read 1068 times)

CarolinaGirl

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HELOC interest question
« on: March 18, 2019, 09:31:59 AM »
Ok, so I’m thinking this is going to be a no...but wanted to ask.  We were hit hard last year with 13k in foundation repairs and then our septic field failed and we had to spend 12k to change our plumbing in order to connect to the city sewer plus the city connect fee.  We used a 0% loan for the foundation work and when it came due I used our HELOC to pay it off to avoid the massive interest charges that would hit.

IRS.GOV: The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.


My first question is...will I be able to deduct the HELOC interest for the foundation work?  It seems a bit sketchy since I had the 0% loan first instead of paying the company directly with the HELOC.       

Second question, would the foundation and sewer work even fall under ‘substantially improve’ in the IRS’s eyes? 
« Last Edit: March 18, 2019, 09:36:29 AM by CarolinaGirl »

bacchi

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Re: HELOC interest question
« Reply #1 on: March 18, 2019, 10:48:20 AM »
Yes to both.

Money is fungible. Just because the money came from your savings account or a 0% loan, and not directly from the HELOC, doesn't mean that the HELOC wasn't used.

Yes, foundation and sewer work both "substantially improve" the property. If it was a rental, it'd be depreciated because it would lengthen the life of the property.



(But if you want an expert opinion, there's always a CPA to ask.)

katsiki

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Re: HELOC interest question
« Reply #2 on: March 18, 2019, 01:25:24 PM »
Agree with bacchi.  Also, not a CPA or tax professional.

CarolinaGirl

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Re: HELOC interest question
« Reply #3 on: March 18, 2019, 02:34:14 PM »
Thank you both! 

SeattleCPA

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Re: HELOC interest question
« Reply #4 on: March 19, 2019, 06:54:07 AM »
I'm not sure this works.

The HELOC can be qualified mortgage indebtedness which means it can generate a mortgage interest deduction. That part doesn't worry me.

The thing I think is a little problematic is that 0% loan. That probably wasn't qualified mortgage indebtedness. That "disqualification" may mean the HELOC can't be either.

I.e., qualified mortgage indebtedness is borrowing used to buy or improve a home and then collateral-ized by the home... or borrowing used to refinance existing qualified mortgage indebtedness.

The problem might be, technically would be, that the 0% loan wasn't collateral-ized by the home and so wasn't qualified mortgage indebtedness.

Someone who's done some recent deep dive research into this can give you a better answer. I'm not sure your deduction doesn't work... It may. I just think you need more research

bacchi

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Re: HELOC interest question
« Reply #5 on: March 19, 2019, 02:05:15 PM »
I'm not sure this works.

The HELOC can be qualified mortgage indebtedness which means it can generate a mortgage interest deduction. That part doesn't worry me.

The thing I think is a little problematic is that 0% loan. That probably wasn't qualified mortgage indebtedness. That "disqualification" may mean the HELOC can't be either.

I.e., qualified mortgage indebtedness is borrowing used to buy or improve a home and then collateral-ized by the home... or borrowing used to refinance existing qualified mortgage indebtedness.

The problem might be, technically would be, that the 0% loan wasn't collateral-ized by the home and so wasn't qualified mortgage indebtedness.

Someone who's done some recent deep dive research into this can give you a better answer. I'm not sure your deduction doesn't work... It may. I just think you need more research

Doesn't this also apply to a credit card payment? If one pays for foundation work with a credit card, the credit card isn't "qualified mortgage indebtedness" either. It's an unsecured loan from a bank.

SeattleCPA

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Re: HELOC interest question
« Reply #6 on: March 20, 2019, 02:08:36 PM »
I'm not sure this works.

The HELOC can be qualified mortgage indebtedness which means it can generate a mortgage interest deduction. That part doesn't worry me.

The thing I think is a little problematic is that 0% loan. That probably wasn't qualified mortgage indebtedness. That "disqualification" may mean the HELOC can't be either.

I.e., qualified mortgage indebtedness is borrowing used to buy or improve a home and then collateral-ized by the home... or borrowing used to refinance existing qualified mortgage indebtedness.

The problem might be, technically would be, that the 0% loan wasn't collateral-ized by the home and so wasn't qualified mortgage indebtedness.

Someone who's done some recent deep dive research into this can give you a better answer. I'm not sure your deduction doesn't work... It may. I just think you need more research

Doesn't this also apply to a credit card payment? If one pays for foundation work with a credit card, the credit card isn't "qualified mortgage indebtedness" either. It's an unsecured loan from a bank.

Yeah, I think it probably does.

 

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