Deductibility of interest paid on HELOC Investment

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  • #5135
    fairira
    Participant

    A homeowner is considering applying for a home equity line of credit (HELOC) whose proceeds would be fully invested in a mutual fund rather than to “buy, build, or substantially improve the taxpayer’s home that secures the loan.” No investment tax-exempt income would be realized. Any investment interest he might pay in excess of net investment income would be carried forward on Firm 4952 and treated as investment interest paid or accrued in the next year.

    Q. 1: Can he be certain that the HELOC interest he will pay will be deductible on Schedule A as an itemized deduction to the extent of his net investment income?

    Q. 2: Are the other HELOC costs (appraisal and other fees) no longer deductible since miscellaneous itemized deductions are not deductible in 2018 through 2025?

    Q. 3: Is there a limit to the HELOC size as far as its investment interest deductibility like there is for deductible mortgage debt with its current deductible limit of $750,000.?

    Thank you for your comments.

    #7223
    Lewis-H
    Participant

    Under the new law, home equity loans and lines of credit are no longer tax-deductible. However, the interest on HELOC money used for capital improvements to a home is still tax-deductible, as long as it falls within the home loan debt limit.

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