Okay, so a coworker on our team recently told me about a borrower situation that made me stop in the middle of a meeting. Someone took out a $75,000 home equity thinking they could deduct all the interest, but when tax time came, they found out that none of it qualified. They used the money to pay off credit cards and get a new car. The IRS treats the interest on your home equity loan the same as the interest on your primary mortgage, but only when you use that money to pay for something else. Starting in 2018, the Tax Cuts and Jobs Act of 2017 changed everything. It limited who could write off their home equity loan interest and what kinds of expenses could be written off.
Because a lot of homeowners thought the rules would end, things are even more confusing now. That was the plan from the start. But the One Big Beautiful Bill Act, which became law on July 4, 2025, made those rules permanent. If you read something that says the rules go back to normal in 2026, that information is no longer correct. The rules about home equity loan interest deductions are not going to change. This means that knowing these permanent rules could mean the difference between a nice tax surprise and a costly mistake.
If you meet a number of specific conditions at the same time, you can deduct the interest on your home equity loan from your federal taxes. The Internal Revenue Service says in Publication 936 that you can only deduct the interest on a home equity loan if you use the money to buy, build, or make major improvements to the home that secures the loan.
You can only use the money you borrow to buy your main home or a second home that meets certain requirements. This includes buying a new home, building a home from scratch, or making improvements that add value or extend the life of your home. You need the right paperwork, but what really matters is having a clear record of where every dollar went.
If you are married and filing jointly, your total mortgage debt can't be more than $750,000. If you are married and filing separately, your total mortgage debt can't be more than $375,000. These limits include your main mortgage and any home equity loans or HELOCs you have, not just the home equity part. If your total mortgage-related debt is more than these amounts, you can only deduct the interest on debt up to the limit.
Your main home, where you live, or a qualified second home, like a vacation home, must be used as collateral for the loan. You must use the property you improved as collateral for that loan. For instance, you can't take out a home equity loan on your main home to fix up a rental property and expect the interest to be tax-deductible.
You can't owe more than what your home is worth now plus the cost of major repairs. The IRS won't let you deduct loan amounts that are more than the value of the collateral if the borrower is underwater on their property.
Our project management team looks over the paperwork needed for every loan AmeriSave makes. For example, home equity documentation is what makes deductions work and keeps the IRS from getting in the way. When we took over this process at AmeriSave, I quickly learned that the borrowers who keep track of every payment and invoice are the ones who don't have any surprises during tax season.
Before 2018, the rules were very easy to understand. You could get a home equity loan, use it for almost anything, and write off the interest on your taxes. When the Tax Cuts and Jobs Act became law, everything changed. It created what is basically a restriction period that most homeowners thought would end after 2025.
This is the timeline that every homeowner needs to know, and it is divided into three parts.
Before 2018, you could deduct the interest on a home equity loan no matter how you used the money. You could use the money to pay off credit cards, buy a boat, send your kids to college, or start a business. The interest would still be eligible for the tax break. Most filers could only have up to $1 million in debt.
The TCJA set strict rules for how to use it from 2018 to 2025. You could only deduct the interest on a home equity loan if you used the money to buy, build, or make major improvements to your home. You could no longer use the money for personal expenses, debt consolidation, education costs, or other things that weren't home improvements. For married couples filing jointly, the maximum deductible debt went down to $750,000. For single filers or married couples filing separately, it went down to $375,000.
The One Big Beautiful Bill Act made the TCJA rules permanent starting in 2026. This is the part that surprises people. Before the OBBBA passed, everyone thought that these rules would end, letting homeowners once again deduct home equity interest no matter how they used the money. Congress made a different choice. The $750,000 limit on debt is now permanent. It is a permanent rule that the money must be used to buy or fix up a home. There is no date in the future when these rules will be less strict.
Publication 936 from the IRS for this tax year confirmed this. If you got a home equity loan or line of credit secured by the property, the interest shown on Form 1098 is not tax-deductible unless the money was used to buy, build, or make major improvements to a qualified home.
There is still one important exception for grandfathered loans. The higher $1 million debt limit still applies if your mortgage started before December 16, 2017, or if you signed a binding contract before that date and closed before April 1, 2018. This grandfather clause also includes refinances of those older loans, as long as the new loan balance is not higher than the old loan balance at the time of refinancing.
Many homeowners were surprised by how the changes to the debt limit affect their current mortgages. If you bought your house with a mortgage for $600,000, You take out a $200,000 home equity loan two years later to build an addition. You can only deduct interest on the first $750,000 of your total debt because it is more than $800,000. The math gets tricky, but you are looking at a proportional decrease in the amount of interest you can deduct.
The IRS uses the phrase "substantially improve" a lot in their guidance, but they haven't been very clear about what that means. In my Master's of Social Work (MSW) program, we learn how vague policy language makes it hard for people to follow the rules. The same idea applies here, where the IRS has left taxpayers to figure out the gray areas on their own.
Most of the time, major improvements will make your home more valuable, last longer, or make it more useful. Think about big changes, not small fixes or regular upkeep. The difference is very important because it decides whether or not thousands of dollars in interest payments can be deducted.
Major kitchen remodels with new cabinets, appliances, and flooring are some of the projects that clearly qualify. Adding a room, finishing a basement, or turning an attic into a living space all count. If you replace your roof, your home will last longer and be eligible. Adding central air conditioning, a new HVAC system, or upgrading your electrical panel are all big improvements. Adding a deck, patio, or garage to your home makes it more useful and valuable.
This is where things start to get interesting. If you are doing a bigger energy efficiency upgrade, replacing old windows with new, more energy-efficient ones could be a big improvement. But replacing just one broken window probably isn't. Repainting the outside of your home keeps it in good shape, but it doesn't add value or make it last longer. The IRS usually sees new landscaping as maintenance instead of an improvement, even though it might make your home look better from the street.
Even if they cost a lot, routine repairs and maintenance never count. Fixing a leaky faucet, patching drywall, or replacing a broken appliance keeps your home working, but it doesn't make it better. Changes to the outside of the house, like new paint in existing rooms or new light fixtures, usually don't meet the requirements.
A common problem for our team: borrowers who mix up their money. Someone borrows $100,000 against their home to remodel their kitchen, but halfway through the project, they use $20,000 to buy a new car. They want to take off the interest on the whole $100,000 at tax time. That doesn't work. The IRS only lets you deduct the part of the cost that was used for qualifying improvements.
You need records that show exactly what you spent and when. That means keeping every receipt, bill, contract, and proof of payment. You are completely responsible for proving that the money you borrowed was used for qualifying improvements.
It's not as important to know if the interest on a home equity loan is tax-deductible as it is to know how much money you'll actually save. The amount you can save depends on a number of things working together. You can avoid costly surprises later by running the numbers before you borrow.
This is a realistic example based on current numbers. You and your spouse took out a $400,000 mortgage to buy a house. The mortgage balance right now is $380,000. You get a $70,000 home equity loan at 7% to build a master suite. The total amount of debt is $450,000, which is well below the $750,000 limit. About $4,900 in interest is paid each year on the home equity loan.
Because you used the money to make major improvements and your total debt is still below $750,000, you can fully deduct the $4,900 in home equity loan interest. You also paid $18,000 in interest on your main loan. The total amount of interest you paid on your mortgage was $22,900.
This is where a lot of borrowers go wrong the most. If you want to claim $22,900 in interest deductions, you need to itemize your tax return instead of taking the standard deduction. The standard deduction for married couples filing jointly this year is $32,200, and for single filers, it is $16,100.
Your mortgage interest is $22,900. The rules for state and local tax deductions say that property taxes are $10,000. Donations to charity: $2,500. The total amount of itemized deductions is $35,400.
Itemizing makes sense because $35,400 is more than the standard deduction of $32,200. By itemizing instead of taking the standard route, you are getting $3,200 more in deductions.
If you are in the 24% federal tax bracket, the interest on that home equity loan will save you $1,176 in federal taxes. This is because the deductible interest of $4,900 times 24% equals $1,176.
If you live in a state that has an income tax, you can also save on state taxes. The flat income tax rate in my home state of Kentucky is 4%. This would save you an extra $196, bringing your total tax benefit for the year to about $1,372.
But most people don't think about this. You are paying $4,900 in interest to save $1,372 on your taxes. Your total cost is still $3,528. The deduction lowers your costs, but you won't save money by borrowing money just to get the tax break.
Now think about a different case. You have the same mortgage and home equity loan, but you're single and your only other deduction is $3,000 in property taxes. Your total itemized deductions would be $25,900. The standard deduction for people who file alone is $16,100, so it still makes sense to itemize. But if you were single and had that same home equity loan and had already paid off your main mortgage, your itemized deductions would only be $7,900. That is less than the standard deduction of $16,100, so you would take the standard deduction and not get any tax benefit from the interest on your home equity loan.
Before you borrow money, AmeriSave's home equity team can help you think about different situations. Knowing all of your financial details, such as how the tax deduction affects your other itemizable expenses, helps you make the best choice for your situation.
To deduct the interest on a home equity loan, you need to plan ahead and keep accurate records. All of the borrowers who are successful use the same methodical approach. This is the right way to do it.
Check to see if you qualify before tax season. Don't wait until April to find out that you can't get the deduction. Look over your situation as soon as you get the home equity loan. Think about this: Did I only use the money I borrowed to buy, build, or make big improvements to my home? Is my total mortgage debt less than $750,000? Do I have proof of every qualifying expense? Will the total of my itemized deductions be more than the standard deduction for my filing status?
If you say no to any of these questions, the deduction won't work or needs more planning. I totally get how frustrating it is to borrow money thinking you'll get a tax break, only to lose it because of a technicality. That's why this upfront check is so important.
Make a separate file, either on paper or on your computer, for all the paperwork related to your home equity loan. You will need the original loan papers that show the loan amount, the terms, and that your home is the collateral. Keep all of your Form 1098s that show how much interest you paid during the tax year. Keep track of how you used the money you made. This includes signed contracts with contractors, itemized invoices showing labor and materials, receipts for all materials bought, proof of payment like canceled checks, and before-and-after photos of projects that made things better.
The IRS can ask for this paperwork even years after you file your taxes. We learned early on that borrowers who keep perfect records have no trouble with audits. Those who throw away receipts after the job is done? They have a hard time.
You should only itemize if it makes sense for your finances. Add up all of your possible itemized expenses, such as mortgage interest from your main loan, home equity loan interest, state and local taxes paid under the current SALT rules, charitable donations, medical costs that are more than 7.5% of your adjusted gross income, and any other itemized deductions that qualify.
Look at this total and see how it compares to the standard deduction for your filing status. Itemizing saves you money if your itemized deductions are more than the standard deduction. If not, just take the standard deduction and don't bother with the home equity interest deduction.
You will use Schedule A on Form 1040 if you choose to itemize. Line 8a wants to know how much interest and points you paid on your home mortgage, as shown on Form 1098. Put the total of all your Forms 1098 together, which should include both your main mortgage and your home equity loan. You don't have to list each loan separately on the form; you just have to list the total qualifying interest.
The IRS usually has three years from the date you file to audit your return, but they can go back further in some cases. You should keep all of your home equity loan paperwork for at least seven years.
It might be even more important to know what doesn't qualify for the home equity loan interest deduction than what does. Too many people who borrow money think they can write off their interest, but they are wrong when it comes time to file their taxes. Here are some situations in which the deduction won't work.
The most common mistake our team finds in loan files is using home equity to pay off personal debt. You get a $50,000 home equity loan to pay off your credit card debt. You think, "I'm borrowing against my home, so the interest must be tax-deductible." Not right now, and not in the future either. If you use the money from a home equity loan to pay off personal debts, you can't deduct the interest from your taxes. Publication 936 from the IRS talks about this.
This surprises people because this exact situation would have worked before 2018. The rules changed, but a lot of borrowers' expectations haven't changed yet. Before the OBBBA passed, people thought the old rules would come back after 2025. That hope is gone. The rule that says you can't deduct interest on things other than home improvements is now permanent.
Costs for education don't count either. Parents often use the equity in their homes to pay for their kids' college because they think that borrowing against that equity is cheaper than taking out student loans. That may be a good idea from a financial point of view, but it won't help you get a tax break. You didn't use the money to buy, build, or fix up your home.
It is not okay to use money from a home equity loan to buy a car. If you use the equity in your home to start a business or buy stocks, you can't deduct the interest as home mortgage interest. In some cases, you might be able to write off the interest as a business expense or investment interest, but those are two different sets of tax rules.
This is a small but important difference. For example, you could take out a home equity loan on your primary residence and use the money to fix up a rental property you own. You might think that the interest is tax-deductible because the loan is backed by your main home. No, it isn't. The IRS says that you have to use the money to fix up the same property that is the loan's collateral.
You can only deduct interest on the first $750,000 of your combined mortgage debt, even if you use the money from a home equity loan to make improvements that qualify. Interest on any debt that is more than that amount is not deductible. If you owe $850,000, you can only deduct 88.24% of your interest, which is $750,000 divided by $850,000.
You can't get any benefits from your home equity loan interest unless you itemize your tax return, even if it technically qualifies. If your total itemized deductions are less than the standard deduction, you will take the standard deduction and your home equity loan interest will not lower your taxes.
No one should have to deal with the stress of borrowing money and then not getting the tax breaks they were promised.
No, the tax rules for HELOCs and traditional home equity loans are the same. The rules are the same. To give a longer answer, you need to know how these two products work differently even though they are taxed the same way.
With a traditional home equity loan, you get a set amount of money upfront at a set interest rate. You pay the same amount each month for the life of the loan, which is usually between 5 and 30 years. This includes both the principal and the interest. From the first day, you know exactly how much you will pay each month.
A HELOC is more like a credit card that is backed by your home. You can get a credit line of up to 80% to 90% of the value of your home, minus the amount you owe on your mortgage. You can borrow money up to your limit during the draw period, which is usually 5 to 10 years. You can then pay it back and borrow more. The amount you have borrowed and the current interest rates will affect your payments. This is because HELOCs usually have variable rates.
Even though they work in different ways, the IRS treats home equity loans and HELOCs the same when it comes to taxes. If you borrowed money to buy, build, or make major improvements to your home, you can deduct the interest. You can't have more than $750,000 in debt. You need the right papers. Your itemized deductions have to be more than the standard deduction.
HELOCs are appealing because they are flexible, but this makes it hard to keep track of for tax purposes. With a traditional home equity loan, you get a lump sum of money, use it to fix up your kitchen, and keep track of all your costs. Easy and clean. You could take out $30,000 in January for kitchen cabinets, $15,000 in March for appliances, $5,000 in June for repairs that come up, and $10,000 in September to replace your windows while the contractors are already there.
You need to show proof for each draw that you used that amount for qualifying improvements. Last year, our project team looked at a case that shows this well: a borrower had a $100,000 HELOC and took out the full amount in small amounts over two years for different reasons. Some of the money went toward remodeling the bathroom, some went toward medical bills, some went toward a family event, and the rest went toward other costs. Only $35,000 met the IRS's requirements. So, 35% of their interest was tax-deductible and 65% was not.
Both products give you a Form 1098 from your lender that shows how much interest you paid during the tax year. This form doesn't tell the difference between uses that qualify and those that don't. It just shows all the interest that was paid. You are in charge of figuring out how much of that interest is related to qualifying expenses.
AmeriSave has both home equity loans and HELOCs, and our loan experts can help you pick the one that best meets your financial needs and tax planning goals.
The One Big Beautiful Bill Act didn't just put limits in place. It also added some new rules that affect how people plan for home equity loans in ways that are worth knowing about.
The OBBBA lets homeowners who pay private mortgage insurance premiums as qualified mortgage interest starting in 2026. If you are paying PMI on your main mortgage because your down payment was less than 20%, this deduction could bring your total itemized deductions above the standard deduction limit. If your adjusted gross income is more than $100,000, the PMI deduction goes away. For every $1,000 over that limit, the deduction goes down by 10%. But for people who make less than that, this is a real new tax break.
The limit on the SALT deduction also changed. For most people who filed taxes from 2025 to 2029, the limit on state and local tax deductions went from $10,000 to $40,000. For married couples filing jointly with modified adjusted gross income over $500,000, the higher cap starts to go away. It goes back to $10,000 when their income reaches $600,000 or more. If you live in a state with high taxes, this higher SALT cap could mean that a lot more of your property taxes and state income taxes are deductible. This makes itemizing more useful and your home equity loan interest deduction more valuable.
Mortgage points are another deduction that some borrowers forget about. You might have to pay points to lower your interest rate when you get a home equity loan. One point is equal to one percent of the amount of your loan. When you take out a home equity loan, you usually have to deduct points over the life of the loan instead of all at once. If you borrow $75,000 against your home for 15 years and pay 2 points, which is $1,500, you divide the points by 180 payments, which comes out to about $8.33 per payment. You can take off $100 that year if you make 12 payments in the first year.
You can deduct all of the remaining points that year if you pay off your home equity loan early by refinancing with a different lender or selling your home. A lot of borrowers miss out on this timing chance.
The OBBBA gave taxpayers 65 and older a new bonus deduction: an extra $6,000 deduction for tax years 2025 through 2028, even if you don't itemize. If you are single and make more than $75,000 or married and make more than $150,000, this deduction starts to go away. This extra deduction could change the math on whether a home equity loan is a good idea for seniors who qualify.
The best way to plan your taxes is to carefully combine all of these deductions. To figure out if itemizing is better than the standard deduction, you need to look at your home equity loan interest, mortgage points, property taxes that are over the expanded SALT cap, and other expenses that can be itemized. AmeriSave gives you detailed information about closing costs that clearly shows which fees could have tax consequences. This helps you see the whole picture before you make a decision.
I've worked with thousands of loan files in my career as a project manager, and I've seen the same mistakes happen over and over. These mistakes cost people real money in lost deductions or, even worse, cause problems with the IRS years down the road.
People often make the mistake of thinking that all home equity loan interest is tax-deductible. Someone gets a home equity loan, sees the words "mortgage" and "home" in the description, and automatically thinks the interest is tax-deductible. They file their taxes and claim the deduction without checking to see if they meet the requirements. The solution is easy, but you need to be disciplined: before you take out the loan, make sure you know how you will use the money and that it meets IRS rules.
The second most expensive mistake is mixing up qualifying and non-qualifying expenses. You borrow $100,000 against your home. You spend $70,000 to fix up the kitchen and $30,000 to pay off your car loans. You can deduct the whole amount of interest when you file your taxes. The IRS only lets you deduct the part that was used for qualifying improvements. The hard part is showing the split when everything went through one account. If you can, keep qualifying funds in a different account.
Not keeping records is a big problem. Our team sees this a lot when we look at loans: borrowers who threw away their receipts. They have a lovely new main suite, but they can't show that they spent the money on it. If you had to show a skeptical IRS auditor exactly what you did using only paper records, could you do it? If the answer is no, your documents are not good enough.
Ignoring the debt limit catches more homeowners than you might think. You owe $680,000 on your main mortgage. You get a $100,000 home equity loan to pay for a real addition. Your total debt is $780,000, which is $30,000 more than the $750,000 limit. You take off all the interest without knowing you need to prorate. You need to figure out what percentage of your total debt is less than $750,000. Then you need to multiply that percentage by the total interest you paid.
Another common mistake is to itemize when it doesn't make sense. You keep a close eye on all the interest on your home equity loan, get all the paperwork in order, and get ready to itemize. Your total itemized deductions come to $28,000. For married couples who file jointly, the standard deduction is $32,200. You should take the standard deduction, which means that all of that paperwork doesn't help you with your taxes at all.
AmeriSave's loan officers know how to spot these common mistakes when people apply for loans. Before you borrow, we ask you questions about how you plan to use the money, explain the paperwork you will need, and help you understand the debt limits.
I am a mortgage expert, not a tax expert, and it's important to know where your expertise ends. I can explain the basic rules for home equity loan interest deductions, but for complicated situations, you should definitely get help from a tax professional.
If your situation is simple, you might be able to do the deduction yourself or with tax software. What does it mean to be straightforward? You took out a home equity loan and used all of the money for one big home improvement project. You have all the paperwork you need, your total debt is well below $750,000, and your total itemized deductions are clearly more than the standard deduction.
In some cases, things are so complicated that hiring a professional is worth the money many times over. If you used the money from a home equity loan for more than one thing, you need help figuring out the right way to calculate the proportional interest deduction. If your total debt is more than $750,000, the prorated calculation becomes more difficult. If you refinanced during the year, you need to know how to handle points and interest. If you own rental properties or work from home, the way that home equity loan interest and business deductions work together makes things more complicated than most people can handle on their own.
A good CPA or enrolled agent does more than just help you file your taxes; they also help you plan for the future. They show you how your taxes change based on when you make decisions by modeling different situations. They help you find chances you might miss, like how to combine your home equity interest deduction with the higher SALT cap and the new PMI deduction.
Tax professionals charge anywhere from a few hundred dollars for simple returns to several thousand dollars for more complicated ones. If your home equity loan is complicated in any way, hiring a professional is probably worth the fees because they can help you get the most deductions and avoid penalties. AmeriSave works with tax professionals who know a lot about home equity loan issues, but we can't give you personal tax advice.
Just breathe. Understanding home equity loan interest deductions could save you thousands of dollars on your taxes, but only if you follow the rules correctly and maintain proper documentation. The OBBBA made the TCJA restrictions permanent, creating a clear and stable framework going forward. Your home equity loan interest is deductible only when you use the borrowed funds to buy, build, or substantially improve your home, your combined mortgage debt stays under $750,000, and you itemize your deductions rather than taking the standard deduction.
The permanence of these rules actually simplifies planning. You no longer need to speculate about whether Congress will extend, modify, or let restrictions expire. The rules are set. Focus on your actual financial needs, the current tax framework, and proper documentation practices. If your situation involves any complexity, bring in a qualified tax professional.
At AmeriSave, we understand that borrowing decisions go far beyond just interest rates and monthly payments. Tax implications represent a real piece of the financial puzzle. Our home equity loan and HELOC specialists can help you structure your borrowing to maximize potential tax benefits while ensuring you have the documentation and guidance you need for successful tax filing.
If you are considering a home equity loan or HELOC to fund improvements to your home, AmeriSave can help you explore how much you could borrow and what that means for your overall financial picture, including potential tax benefits. Start your application today at AmeriSave.com, or speak with one of our mortgage advisors who can answer your specific questions and guide you through the process.
No, not under current tax law. This rule is now permanent. The One Big Beautiful Bill Act made the TCJA rule that you must use the money from a home equity loan to buy, build, or make major improvements to your home in order to deduct the interest on your taxes. This requirement is not met if you use the money to pay off credit card debt. Publication 936 from the IRS says that you can't deduct the interest on a loan secured by your home if the money is used to pay off personal debts. This situation would have been acceptable before 2018, but the OBBBA made sure that those older rules would never come back. You may still be able to save money on your interest rate with a home equity loan, since the average rate is around 7%, which is much lower than the average credit card rate of over 20%. However, you won't be able to deduct the interest from your taxes. You can use AmeriSave's home equity loan options to see if the lower interest rates are worth the cost of borrowing.
Your lender must give you Form 1098 by January 31 of the year after the tax year. This form shows how much interest you paid during the tax year. You also need proof of how you used the money, such as contracts, invoices, receipts, and proof of payment. You don't have to send these in with your return, but you should keep them in case the IRS comes to check. To get the deduction, you need to fill out Form 1040 or 1040-SR and use Schedule A to list your deductions. Line 8a of Schedule A asks for the home mortgage interest and points that were reported on Form 1098. Put your total mortgage interest there. This includes the interest on both your main mortgage and your home equity loan. You might need to write an explanation of your calculations if your total debt is more than $750,000 or you used the money for more than one purpose. The Resource Center at AmeriSave has more information about what documents you need.
Yes, the tax treatment of HELOC interest is the same as that of traditional home equity loan interest. If you use the money from your HELOC to buy, build, or make major improvements to your main home or a qualified second home, you can deduct the interest just like you would for any other loan. Your total mortgage debt can't be more than $750,000, you have to itemize, and you need the right paperwork. The hardest part about HELOCs is keeping track of how you used the money because you get it in small amounts over time instead of all at once. You need to have proof that each draw went toward improvements that met the requirements. If you take out $10,000 for kitchen cabinets and $5,000 for medical bills, only the $10,000 draw will have deductible interest. Find out what percentage of your total HELOC balance was used for qualifying purposes, and then only deduct that percentage of the interest on your Form 1098. AmeriSave has both home equity loans and HELOCs, and they can help you keep track of your draws.
Yes, you can still get your interest deduction even if you refinance, as long as the original loan was used for qualifying purposes. The IRS looks at how the money will be used in the end, not just the most recent transaction. If you took out a home equity loan to remodel your bathroom and then refinanced it to get a better rate, the interest on the new loan is still tax-deductible. When you refinance and take out more equity, only the new money that you use for qualifying improvements will generate deductible interest. The part of the original balance that is still there keeps making deductible interest. You have to pay off points on a refinance over the life of the loan, but if you refinance with a different lender, you can deduct all the points you still owe on your old loan in the year you refinance. Check out AmeriSave's refinancing options to see if lowering your rate would be good for you.
You can still write off interest, but only on the first $750,000 of debt you have. You need to divide the calculation into parts that are equal. Your first mortgage of $650,000 and your home equity loan of $200,000 for qualifying improvements add up to $850,000 in debt. This means that the deductible part is $750,000 divided by $850,000, or 88.24%. Your deductible amount is $38,826 if you paid $44,000 in interest on both loans. You can't deduct the last $5,174. You can't choose which loan takes the non-deductible part; this calculation applies to all of your qualifying secured debt. A tax professional can make sure the calculation is right, especially when there are more than one loan and the balances are different. Before you borrow money, AmeriSave's prequalification tools can help you figure out how much debt you already have.
Yes, in order to deduct the interest, you must have an ownership interest in the property that secures the loan. You can't deduct the interest if you co-sign for your adult child but your name isn't on the property title, even though you have to pay it. On the other hand, if you are on the title but not the loan, you can't deduct interest that you didn't really pay. This is usually not a problem for married couples who file together because most of them own property together. If you are married and filing separately, only the spouse who paid the interest can take the deduction. That spouse must also have an ownership interest. This gets complicated quickly in divorce cases, depending on who owns what and how the decree is written. In these cases, you need professional tax help. Find out more about AmeriSave's home equity products that are right for you.
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