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Home Equity Tax Deduction Eliminated in 2018 | Tax Lawyers News

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The Home Equity Tax Deduction used to be one of the most common deductions used by US taxpayers. The Tax Cuts and Jobs Act of 2017 eliminated this deduction. Let’s take a brief look at the Home Equity Tax Deduction and what its elimination may mean for your US tax return.

Home Equity Tax Deduction: What are Home Equity Loans and Home Equity Lines of Credit?

A Home Equity Loan is a loan which uses the borrower’s equity in his home as a collateral for the loan.

A Home Equity Line of Credit or HELOC is a loan in which a lender agrees to lend a certain amount of funds to the borrower who uses his equity in his home as a collateral. HELOC is different from a conventional home equity loan because the borrower does not receive the entire amount of the credit up front, but uses a line of credit to borrow funds as needed (but not to exceed the credit limit). HELOC is very similar to a credit card, but it is backed-up by the borrower’s real estate.

Home Equity Tax Deduction as of 2017

Prior to the Tax Cuts and Jobs Act of 2017, homeowners who took out home equity loans could deduct from their adjusted gross income (on Schedule A) the interest on a Home Equity Loan or HELOC up to $100,000. This was called the Home Equity Tax Deduction.

Home Equity Tax Deduction Eliminated Starting Tax Year 2018

As a result of the 2017 tax reform (the Tax Cuts and Jobs Act of 2017), the Home Equity Tax Deduction was completely eliminated. In fact, the deduction was eliminated for both, new and existing borrowers (unlike the home mortgage deduction).

Home Equity Tax Deduction Elimination May Impact 2018 Individual Tax Returns

While the precise tax impact of the elimination of the Home Equity Tax Deduction may vary based on your precise tax situation, it can be reasonably supposed that the end of this deduction may result in a larger amount of taxpayers taking standard deduction rather than trying to itemize their deductions. This will be especially true since, in 2018, the standard deduction will double in size.

2017 Tax Filing Season Begins January 23 & Tax Returns due April 18, 2017

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On December 12, 2016, the IRS announced today that the 2017 tax filing season (for the tax year 2016) will begin on January 23, 2017. The 2017 tax filing season e-filings will be accepted by the IRS starting that date. The IRS again expects that more than four out of five tax returns will be prepared electronically using tax return preparation software.

2017 Tax Filing Season Deadline is on April 18, 2017

The filing deadline to submit 2016 tax returns will be April 18, 2017 (Tuesday), rather than the usual April 15. The delay is caused by the fact that April 16 falls on a Saturday which would usually move the deadline to the following Monday (April 17). However, April 17 is the Emancipation Day, which is a legal holiday in the District of Columbia, and the final deadline is pushed to April 18, 2017 (under the law, legal holidays in the District of Columbia affect the national filing deadlines).

Early Paper Filing Offers No Advantage in the 2017 Tax Filing Season

Many software companies and tax professionals will begin accepting tax returns before January 23 and then they will submit the returns when the IRS systems open. It is noteworthy to state, however, that the IRS will begin processing paper tax returns only on January 23. Hence, there is no advantage to filing paper tax returns in early January instead of waiting for the IRS to begin accepting e-filed returns.

Some of the 2017 Tax Filing Season Refunds Could Be Affected by the PATH Act

The IRS also reminded the taxpayers that the Protecting Americans from Tax Hikes Act (the PATH Act) will have a direct impact on the timing of some refunds. In particular, the PATH Act requires the IRS to hold refunds that claim Earned Income Tax Credit (“EITC”) and the Additional Child Tax Credit (“ACTC”) until February 15. The hold applies to the entire refund, not just the portion associated with EITC and ACTC. Then, it will take several days for these refunds to be released and processed through financial institutions. With weekends and holidays, the IRS estimates that many taxpayers will not be able to access their refunds until after February 27, 2017.

The idea behind the new law is to protect the taxpayers by giving the IRS more time to detect and prevent tax fraud, which has become a huge headache for the IRS in the past few years.