Deducting home equity loan interest can save you money on your tax bill, but you have to understand the rules under the Tax Cuts and Jobs Act (TCJA) of 2017. A loophole allows homeowners to deduct interest for qualified 澳洲幸运5官方开奖结果体彩网:home improvements. Specifically, you can write off the home equity loan interest if you use the funds to buy, build, or substantially improve the residence.

Overviꦑew of the Tax Cuts and Jobs Act (TCJA) of 2017

The TCJA was an overhaul of federal tax rules that impacted individuals and businesses. The law lowered income tax rates for many individuals. It increased the standard deduction, but it also introduced limitations on several 澳洲幸运5官方开奖结果体彩网:itemized deductions.

Before the introduction of the TCJA, homeowners could deduct the interest they paid on home equity loans. Now, there are limitations on deducting that interest based on how the home equity loan is used. For example, you cannot deduct interest paid on a home equity loan if that loan is used for personal living expenses.

Understanding the Loophole

While the TCJA does limit homeowners' ability to deduct interest on a home equity loan or a 澳洲幸运5官方开奖结果体彩网:home equit💫y line of credit (HELOC), a loophole allows you to claimꦆ a deduction in certain cases.

You can deduct the interest paid on a home equity loan if the money is used to build, purchase, or improve your home.

Eligible Home Improvement Expenses

You can deduct the interest on a home equity loan secured by your primary home or second home when you use the loan to buy a property or build a home.

You can also claim the deduction when you use a home equity l🦄oan to improve your home. Eligible improveme💯nt expenses include:

• Remodeling: Remodels are often big projects. For example, you may decide to finance your kitchen remodel with a home equity loan. The interest you pay on that loan would be deductible.
• Home addition or conversion: Building an addition to your home or converting your basement into a livable space adds value to your home, which means these projects would be eligible expenses.
• New roof: Replacing your home's roof is a big improvement project. You can likely deduct the interest you pay on a home equity loan that finances the new roof.
• Solar panel installation. Solar panels could boost the value of your home and potentially result in tax-deductible interest.

If a project adds to the value of your home, it is typically considered an eligible expense that will allow you to deduct the interest you pay on a home equity loan or HELOC.

Best Practices for Claiming the Deduction

If you plan to claim this type of deduction, it is important that😼 you fo﷽llow the IRS requirements.

• Check the IRS requirements: Before you move forward with the deduction, ensure the loan is secured by your primary residence or a second home, like a vacation home. Confirm that the loan proceeds were used to improve your home or to buy or build a home.
• Gather your documentation: You will need Form 1098, which is your mortgage interest form. It will include the interest you paid on your home equity loan. You may not receive this form if you paid less than $600 in interest.

You will also need receipts to show that you used the funds for an eligible home improvement.

• Consider all of your deductions. Interest paid on a home equity loan is one possible deduction. Consider all of your itemized deductions. For example, you may have 澳洲幸运5官方开奖结果体彩网:mortgage points, which you can pay to your lender to lower your interest rate.

Adding up all of your itemized deductions can help you decide between taking an itemized or 澳洲幸运5官方开奖结果体彩网:standard deduction. The standard deduction is $15,000 if you file for tax year 2025 as an individual or married filing separately. Married couples who file jointly have a standard deduction of $30,000. If you file as head of household, your standard deduction is $22,500.

Limitations and Considerations

While you can claim interest paid on a homꦕe equity loan or HELOC as a deduction when you use the debt for eligible projects, there are still some other limitations🍒 to consider.

The TCJA changed the total mortgage loan amount for taxpayers to deduct interest. Previously, the total amoun▨t was $1 million. Under the TCJA, it is $750,000 for indܫividuals filing as single and married couples filing jointly. If you are married filing separately, the cap is $375,000.

The year you took out the home equity loan can impact your deduction. For loans taken out before Dec. 15, 2017, the maximum remains $1 million.

Keep in minꦬd that you ܫcan still qualify for the deduction with loans greater than the cap, but the maximum amount set by the IRS will be used to calculate the interest you pay and can deduct.

The Bottom Line

You have the option to deduct inter🃏est paid on a home equity loan, even under the TCJA. However, it is important to understand the limitations of that deduction, including how the loan is used and the loan amount.

If this deduction and your other itemized deduꦍctions add up to mor🌱e than the standard deduction, you will save more on your taxes by claiming the itemized deductions.