Tax Reform and HELOCs: What Now?

Filed in Codes and Regulations, Economics, Remodelers by on January 29, 2018 3 Comments

home improvement loanAs the dust settles on last month’s tax reform debate, remodelers and their clients may see conflicting information about home equity credit lines (HELOCs) and second mortgages — traditionally, important funding sources for major home renovation work.

In a recent letter, NAHB asked Treasury Sec. Steven T. Mnuchin and the IRS to weigh in.

“As most major remodeling projects are financed using debt secured by the buyer’s home, the deductibility of interest paid on loans used to substantially improve a home is the lifeblood of the industry,” the letter says.

While the new law no longer allows home owners to deduct the interest on HELOCs if they are using the equity for tuition, a new car or a vacation, the bill does carve out money used for “substantial improvements” to their homes, so long as the combined total of their first and second mortgages and HELOC balances does not exceed the $750,000 limit on mortgage amounts qualified for interest deductions.

While that is lower than the $1.1 million for the first mortgage and home-equity debt combined before the tax reform measures were passed, it’s still useful, said NAHB economist David Logan.

“As long as clients demonstrate that they have used the HELOC for capital improvements on their homes, they should be in compliance,” he said.

However, he cautioned, remodelers should not take the role of tax advisor for their clients and should recommend that they call their accountants before making the decision to take out a loan.

The Washington Post’s Kenneth Harney discusses the new HELOC rules in a recent real estate column. NAHBNow will offer a series of blog posts in the coming weeks about the effects of the new tax law on our members’ businesses.

For additional information, contact David Logan.

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  1. Bob Hanbury says:

    Clarity and consumer awareness that the deduction is still there is so important to our remodelers. Webinars and media exposure is a great first step.

  2. Still needs to know what is the definition of “Capital Improvement” and “Being in Compliance, but sounds like a huge step in the right direction.

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