Navigating Home Equity Loan Interest Deductions for HNI Employees

'HNI employees navigating home equity deductions under the TCJA should focus on strategic planning and documentation to align with IRS rules and unlock potential tax advantages.' – Brent Wolf, a representative of The Retirement Group, a division of Wealth Enhancement Group.

'For HNI employees, understanding the TCJA's home equity deduction rules is essential, as only home improvement-related loans now qualify, making proper usage and recordkeeping more critical than ever.' – Kevin Landis, a representative of The Retirement Group, a division of Wealth Enhancement Group.

In this article, we will discuss:

1. The impact of the Tax Cuts and Jobs Act (TCJA) of 2017 on home equity loan interest deductions for HNI employees.

2. Key eligibility requirements and deduction limits under the new tax laws.

3. Best practices for using home equity loans and HELOCs effectively while taking full advantage of tax benefits.

The 2017 Tax Cuts and Jobs Act changed the tax landscape for homeowners like those in the HNI. This legislation created some new tax benefits and eliminated some traditional deductions affecting homeowners' fiscal responsibility.

Home Equity Loan Interest Deduction Changes.

The TCJA changed how interest is deducted on home equity loans. Previously, employees of HNI could deduct interest under most conditions. Today, they are cut in half through the end of 2025 – except under IRS-mandated restrictions: That deduction must be applied to buy, build or substantially improve the taxpayer's primary residence.

Eligibility for Deduction

- HNI employees claiming this deduction must follow these guidelines:

- The funds must be used for substantial home improvements as defined by the IRS.

- The loan cannot be used for unqualified expenses like personal spending or debt consolidation.

Only mortgage debt up to USD 750,000 taken after December 15, 2017, is eligible for the interest deduction. For married couples filing separately, the limit is USD 375,000.

Tax Exempt Housing: IRS Advisory on Home Equity Loans.

In 2018, the IRS clarified interest on home equity loans, HELOCs and second mortgages are deductible when used for approved home improvements. That includes additions, roof replacements, HVAC installations & more – necessary to maintain or improve a home's value. Source: IRS Home Equity Loan Advisory (PDF).

Best Practices for HNI Homeowners.

HNI employees must prove the loan is used only for eligible renovations to get this deduction. Usage of funds can disqualify the deduction. Detailing expenditures and banking transactions is recommended to validate deductions during potential IRS audits.

Deduction Limits and Considerations

For loans originated post-December 15, 2017, the deductible interest is limited to USD 750,000 of home loan debt under the TCJA. For mortgages taken before that date, the deductible remains USD 1 million or USD 500,000 for married filers filing separately. HNI employees with older mortgages should consult tax advisors on their situation.

Home Equity Lines of Credit & Deductibility.

For HELOCs, interest is deductible only if the money is spent on qualifying home improvements, which follow broader limitations that only home enhancement-related expenses are deductible.

Home Improvement Loan Considerations

Interest on loans up to USD 750,000 used for home improvements, including HELOCs, is deductible if the improvements benefit the property tied to the loan.

Concluding Thoughts

For HNI employees looking to upgrade their living spaces, a home equity loan or HELOC could provide significant tax savings in interest deductions. Compare various loans to find one that works best for you.

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This summary informs HNI homeowners about home equity tax deductions post-TCJA. Be it major property improvements or simply updating your living space – knowing the tax implications of your investments is important.

Managing a well-regulated greenhouse involves knowing specifics about home equity loan interest deductions under the TCJA. As a gardener needs to know what conditions encourage growth, so must HNI homeowners understand IRS rules that allow such deductions to flourish. Planning ahead and allocating funds for qualified home improvements could yield tax benefits.

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Source:

1. Internal Revenue Service.  Real Estate Taxes, Mortgage Interest, Points, Other Property Expenses . Oct. 2024,  www.irs.gov . Accessed 15 Apr. 2025.

2. Cussen, Mark P. 'Tax Loophole for Deducting Home Equity Loan Interest.'  Investopedia , Mar. 2024,  www.investopedia.com . Accessed 15 Apr. 2025.

3. Lewis, Holden. 'Is Home Equity Loan Interest Tax-Deductible?'  NerdWallet , Dec. 2024,  www.nerdwallet.com . Accessed 15 Apr. 2025.

4. Pacific Life Editorial Team. 'How Tax Reform Impacts Retirement and Estate Planning.'  Pacific Life , Nov. 2022,  www.pacificlife.com . Accessed 15 Apr. 2025.

5. Block, Sandra. 'Retirees, Make the Most of Your Home Equity.'  Kiplinger , Oct. 2020,  www.kiplinger.com . Accessed 15 Apr. 2025.