HELOC interest deductions in 2024 | All you need to know!
Deductibility of HELOC interest changed with the passage of TCJA, and it's set to change again at the end of 2025 if current tax law doesn't change.
Under current law, deductions are limited to the first $750,000 of mortgage debt on your primary and/or secondary home. If a HELOC is part of that, you must have used the money to buy, build, or substantially improve your primary or secondary home.
Watch this short video to learn the ins and outs!
Transcript:
On today's video, we're going to be talking all about Home Equity Line Of Credit interest deductions. I'm Chris Kaminski, co-founder and partner with Consilio Wealth, where we specialize in working with tech professionals at Amazon, Microsoft, Metta, and Google.
All right, HELOC interest deduction. The first thing you need to understand is that in order to deduct the interest spent on your HELOC, you must either buy, build, or substantially improve your primary home or a secondary home. These rules changed with the passage of the Tax Cuts and Jobs Act a handful of years ago. Prior to that, you used to be able to deduct all interest that you paid on your HELOC. So, you could use this to pay off your credit cards, pay off a car, pay off something that didn't normally have a deduction, and you could throw it on your HELOC and get a deduction for that interest. Those rules are no more and under current law, the Tax Cuts and Jobs Act is set to sunset at the end of 2025.
So, what I'm going to talk about in this video is applicable now and may change at the end of 2025 if tax law changes. Okay, so under current law, the total amount of interest that you can deduct is limited to $750,000 of mortgage debt. That is inclusive of HELOC.
So, let's say that you have a $500,000 mortgage and a $100,000 home equity line. That's a $600,000 total. You can deduct all of that interest that you're spending on those two loans. Again, so long as you're using the HELOC balance to buy, build, or substantially improve your primary or secondary residence. Let's say that you have a $1.5 million loan. Only the first $750,000 worth of interest, so half of the interest, would be deductible. That's also true with a HELOC. Maybe it was a $650,000 loan. Maybe it was a $1.4 million loan with a $100,000 HELOC. Again, just the first $750,000 of interest is deductible.
One final rule here, did you rent your home? If you did, you must have lived there personally for at least 14 days or for 10% of the days that you rented it out. This is probably not relevant for a primary residence but might be for a second if you rent it out and again, if you have a home equity line on say your primary residence that you used to purchase your secondary residence and it qualifies under the rules that I mentioned prior, you would not be able to deduct that interest.
Okay, so in sum, can you deduct home equity line of credit interest? Generally, yes, but it has limitations, and those limitations are up to $750,000 of total debt and anything on your HELOC you must have used to buy, build or substantially improve your primary or secondary residence.
Finally, you have to itemize deductions in order to take this. So, this is going to go on your schedule A and so if the total interest paid on all of your loans are less than the standard deduction, this has no benefit to you.
All right, now you know how deductibility of HELOCs work.
