Making a HELOC Work for You

Posted on by LBS Tax

Under the new tax code you may not be able to deduct the interest paid on your home equity line of credit. For a home equity line interest to be deductible it must be used to repair, maintain or improve your home. If it was used for other expenses that portion is not tax deductible any longer.

If you have a home equity line this may be the time to renovate the kitchen with that new granite counter top or resurface the pool or even replace the air conditioner before it gets warm. Using your home equity line to pay for these will mean the interest is tax deductible.

However, if you have or should use your home equity line for other things such as paying down credit cards, college or other transactions that are not for the improvement of your home that portion of interest on the home equity line isn’t tax deductible.

The challenge becomes when you have used your home equity line for both improvements and personal expenses. Let’s say you used $20,000 for home improvement and paid off $20,000 in credit card debt, we would need to determine what portion of the interest is tax deductible. This is where we are going to need a breakdown from you to determine where and how much money was spent on home improvement, a spreadsheet (link to one I designed) may be the easiest way to determine where the HELOC money was used. Your bank or a consultation with your tax professional may be able to assist you in determining the interest deduction.

View our worksheet

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