Are Home Equity Loans Deductible?
Home equity loans can indeed be tax-deductible, but there are specific conditions that must be met. Generally, the IRS allows you to deduct interest on home equity loans if the funds are used to buy, build, or substantially improve your home. This is known as the "Mortgage Interest Deduction."
According to the Tax Cuts and Jobs Act, which applies to tax years 2018 through 2025, taxpayers can deduct interest on up to $750,000 of qualifying mortgage debt ($375,000 if married filing separately) for homes purchased after December 15, 2017. This limit applies to the combined amount of your mortgage and home equity loans.
It's also vital to know that if the funds from the home equity loan are used for purposes other than acquiring or improving the home — such as paying off credit card debt or funding education — the interest is not deductible. Make sure to keep a record of how the borrowed funds are utilized.
In conclusion, while home equity loan interest can be deductible, eligible homeowners should confirm that the loan meets IRS requirements and be mindful of the loan purpose to maximize potential tax benefits. For personalized advice, consider consulting a tax professional.