2018 has brought upon a few changes in Illinois family law, but there have also been some changes with federal tax reform and home loan deductions. During a divorce, it is common that a client may consider refinancing the marital home. Will refinancing a mortgage will affect deductibility of interest on taxes starting next year?
In article published by Forbes, it is noted as follows regarding mortgage interest deductions: If you buy a home between now and 2026, you can deduct the interest on up to $750,000 in mortgage debt used to purchase or improve it as an itemized deduction. This cap affects home purchases made after December 14, 2017. Anyone who took out a mortgage on December 14 or earlier will be able to deduct interest on up to $1 million in debt, the old cap, for that home, even if they refinance to get a lower rate. (Note that prior to the new law, interest on up to $100,000 in home equity debt taken to improve a home was also deductible, which the IRS interpreted as meaning that interest on a mortgage of up to $1.1 million could be claimed.) Barring new legislation, in 2026 the law will revert to its prior state, with interest on up to $1.1 million in mortgage and home equity debt again deductible.
Since most homes in this country are worth far less than $750,000, this change alone will not increase housing costs for the majority of home buyers.
The IRS provided additional information regarding Home Equity Lines of Credit: Contrary to what many articles on the internet have suggested, On February 21 2018, the Internal Revenue Service advised taxpayers that in many cases they can continue to deduct interest paid on home equity loans.
Responding to many questions received from taxpayers and tax professionals, the IRS said that despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labeled. 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.
Under the new law, for example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not. As under prior law, the loan must be secured by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements.
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For more information about how the new tax laws may affect your home loan deductions, please contact:
Jason Zimmer | Owner/Banker
Parlay Mortgage & Property, Inc. | 16612 W. 159th Street, Suite 201 | Lockport, IL 60441
Corporate NMLS # 218753 |IL License # MB.6760430 | IN License # 218753
Office: 815.838.6613 | E-mail: email@example.com |Web: www.parlaymortgage.com
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