Author Topic: HELOC Interest no longer deductible under the Tax Bill  (Read 1169 times)

elysianfields

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HELOC Interest no longer deductible under the Tax Bill
« on: December 16, 2017, 02:41:04 PM »
According to https://www.nytimes.com/2017/12/16/your-money/tax-plan-changes.html

Quote from: The New York Times
State and Local Tax Deductions, and Mortgage Interest

What’s in place now:

You can generally deduct the amount you pay for state and local income taxes, including property taxes, on your federal income tax return. You can also deduct the interest you pay each year on mortgage debt up to $1 million, a cap that can cover multiple homes. Plus, you can generally deduct up to $100,000 in interest you pay on a home-equity loan or line of credit.

What’s in the new plan:

Taxpayers may deduct only up to $10,000 total, which may include any combination of state and local taxes, including property taxes (also sales taxes). But don’t try to prepay your income taxes before year-end to circumvent the new limit. The tax proposal is one step ahead of you and your accountant and won’t allow it.

You can also deduct the interest paid on mortgage debt up to $750,000. But if you bought a property before Dec. 15, you can still deduct interest up to $1 million (the limit under current law). Home equity loan interest is no longer deductible for anyone.(emphasis mine)


For such business lovers, the party in power sure seems to like to stick it to small-business real estate investors / landlords.

elysianfields

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Re: HELOC Interest no longer deductible under the Tax Bill
« Reply #1 on: December 16, 2017, 02:48:01 PM »
Oh and Homeowners Have Had It Good. Too Good, Says the Tax Bill:

Quote from: The New York Times

...The bill will increase many homeowners’ monthly housing costs by scaling back deductions that allow them to reduce mortgage interest and property taxes. And by roughly doubling the standard deduction, it reduces the incentive to buy homes by making far fewer homeowners eligible for preferential tax treatment.

Today, a little under half of American homes are worth enough to justify itemizing mortgage interest and property taxes. Under the tax legislation, that figure would fall to close to 14 percent, according to an analysis of the plan by the online real estate marketplace Zillow...

Because I agree that full deductibility is an unfair subsidy, especially to homeowners of wealthy means, I would prefer to support homeownership through a means-tested refundable mortgage credit.

OTOH, these changes throw significant uncertainties into our calculations, at a time when we're about to close on a (non-owner-occupied) LOC on our rental property.

Theoretically, the loss of deductibility should make the LOC interest rate go down.  If the bill passes, I'm calling our lender back to re-negotiate.
« Last Edit: December 16, 2017, 02:50:12 PM by elysianfields »

RangerOne

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Re: HELOC Interest no longer deductible under the Tax Bill
« Reply #2 on: December 29, 2017, 01:35:32 PM »
Oh and Homeowners Have Had It Good. Too Good, Says the Tax Bill:

Quote from: The New York Times

...The bill will increase many homeowners’ monthly housing costs by scaling back deductions that allow them to reduce mortgage interest and property taxes. And by roughly doubling the standard deduction, it reduces the incentive to buy homes by making far fewer homeowners eligible for preferential tax treatment.

Today, a little under half of American homes are worth enough to justify itemizing mortgage interest and property taxes. Under the tax legislation, that figure would fall to close to 14 percent, according to an analysis of the plan by the online real estate marketplace Zillow...

Because I agree that full deductibility is an unfair subsidy, especially to homeowners of wealthy means, I would prefer to support homeownership through a means-tested refundable mortgage credit.

OTOH, these changes throw significant uncertainties into our calculations, at a time when we're about to close on a (non-owner-occupied) LOC on our rental property.

Theoretically, the loss of deductibility should make the LOC interest rate go down.  If the bill passes, I'm calling our lender back to re-negotiate.

I believe this still exists with the MCC tax credit in California. Hard cut off in places like San Diego I believe is $120k income pre deductions and the home price cap is around $500 mill... I believe this credit is still available and it can directly be applied to discount your carrying cost through escrow.

Basically you get a tax credit based on your interest paid. I believe it may also be refundable though I didn't get to deep into the specifics.

However there is a nasty little recapture tax if you don't live in the home long enough. And also I believe you need to establish your loan through a participating lender or get your lender to do the paperwork. The cutoff for eligibility rises with he California zip code.

I am honestly not sure if most people are even told about this option. I had to dig to find it. Alas I did not look like I would likely ever qualify long enough to take advantage. Also it might not be a good deal if you are highly likely to disqualify yourself based on income over the 10 year period.

mousebandit

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Re: HELOC Interest no longer deductible under the Tax Bill
« Reply #3 on: January 01, 2018, 01:13:13 AM »
When preparing taxes last year, I had a client who used LOC on personal residence to purchase rental home.  A statement was included with the tax return, every year, to affirm that fact, and the interest on the LOC was taken as a business expense against the rental income, every year.  No audits, no issues.   Check with your tax preparer.