Under the new Tax Cuts and Jobs Act (TCJA), many homeowners will be adversely affected by a provision that for 2018-2025 generally disallows interest deductions for home equity loans. But, MarketWatch staffer Bill Bischoff writes, all is not lost.
Previously, homeowners could claim itemized qualified residence interest deductions on up to $1 million of home acquisition debt, or $500,000 if you used married filing separate status, Bischoff explains.
For 2018-2025, the TCJA generally allows you treat interest on up to $750,000 of home acquisition debt (incurred to buy or improve your first or second residence and secured by that residence) as deductible qualified residence interest. If you use married filing separate status, the debt limit is cut to $375,000.
Under one grandfather rule, the TCJA changes do not affect up to $1 million of home acquisition debt that was taken out: (1) before Dec. 16, 2017 or (2) under a binding contract that was in effect before Dec. 16, 2017, as long as your home purchase closed before April 1, 2018.
Under a second grandfather rule, the TCJA changes do not affect up to $1 million of home acquisition debt that was taken out before Dec. 16, 2017 and then refinanced later — to the extent the initial principal balance of the new loan does not exceed the principal balance of the old loan at the time of the refinancing.
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