As the New Year’s celebrations come to a close, we enter 2018 with a tax code that looks much different than the tax code of 2017. While some will be continuing the celebration due to the changes, the tax year of 2018 will present different opportunities and challenges as we adapt to new standard deduction levels, adjustments to tax brackets, and changes to itemization. We will focus today on the mortgage interest deduction, more specifically, home equity loans.
Home equity loans have grown in popularity over the last twenty years as a tool for such things as debt consolidation, home improvement, and tuition bills to name a few. Under the right circumstances, home equity loans offered a great solution for people looking for a low cost and tax-deductible debt option. Unfortunately, the tax-deductible aspect is now a thing of the past. The new legislation states that home equity loan interest is no longer tax deductible. For many people, this means the loss of a large and impactful tax deduction. However, primary residence first mortgage loan interest is still deductible.
For people who hold a large balance on a home equity loan, you may want to have a conversation with your financial advisor and mortgage loan officer. It may make sense to combine a first mortgage and a home equity loan in the right scenario. This is not a solution for everyone with an equity loan and should only be explored with the assistance of mortgage and tax professionals. That said, first mortgage rates are still at historic lows and looking at a mortgage refinance may provide a way to lower the interest rate on your first mortgage and combine an equity loan into a primary mortgage as well. Feel free to contact our office if you would like to discuss your situation in greater detail.