Interest Deduction Tax Changes

Thursday morning June 21st, at 4:07 AM MST, will be this year’s summer solstice, the longest day, the shortest night.  I love this time of year!  The days are warm and long, and the nights are short and pleasant. We get outdoors, wear shorts and sandals, socialize with friends and family, take road trips and vacations, ride bikes, float rivers, hike mountains, go camping, and go to outdoor festivals and shows.  Get out and enjoy the summer, it flies by so fast!

This month I look at how the new federal tax law effects home equity loan tax deductions and the latest on increasing interest rates.  Next month I’ll cover the second quarter residential housing results, for Salt Lake City and Salt Lake County.
Home Equity Loan Tax Deductions Now Limited:

The new federal tax law that was passed in December 2017, limits the interest rate tax deductions on home equity loans and home equity lines of credit (HELOC).  The previous tax law, allowed you to write off the interest on these loans, up to $100,000 of debt, no matter what you spent the money on.  Now the money must be spent to “buy, build or substantially improve” your home, and repairs don’t count.
Even if you wrote the interest off on your 2017 federal taxes, if the money wasn’t spent to buy, build or substantially improve the home it’s attached to, you won’t be able to write it off on your 2018 taxes, and this law will not expire until 2025.
The new cap on how much interest can be written off for a primary and secondary residence is up to $750,000, which would be a combined total of the first mortgages and home equity loans for up to two homes.  The law does have a grandfather clause that allows for up to $1,000,000 of debt, for properties with debt acquired prior to the new tax law.
So if you were thinking about buying a car or a camper, paying tuition, making a loan to a family member or taking an exotic trip, think twice about doing that with the proceeds from a home equity loan.  If you already have a home equity loan that you didn’t use the proceeds to buy, build or substantially improve the home it is attached to, that’s probably debt you’ll want to pay off at an accelerated rate, if you’re able to do that.

Interest Rate Update:

Last Wednesday June 13th, the Federal Reserve (Fed) raised it’s bench mark interest rate, the overnight lending rate that banks lend to each other at, by 0.25%, to a range of 1.75% to 2.0%.  This is the second quarter percent hike this year.

Also during that FMOC meeting, 8 of 15 governors voted for two additional interest rate increases between now and the end of the year, which would make four increases for 2018, up from three increases in their previous meeting.  In the previous meeting, only 7 of 15 governors voted for four increases for 2018, so it’s more likely that will happen now.
The 30-year fixed rate mortgage, per the Freddie Mac St. Louis Fed, was at an average of 4.62% on June 14th.  The 30-year mortgage rate has increased 0.84% since September 14, 2017 when it was at 3.78%.  The last time the 30-year mortgage rate was this high was May 2011, although it was close to these levels in the second half of 2013 and the first quarter of 2017.

(Freddie Mac 30-year fixed rate mortgage average, 2008 to 2018)

If you have any questions about buying or selling real estate in and around Salt Lake County, wonder what your home is worth, need a contractor referral, or have a friend that needs help buying or selling, please contact me.  I’ve been a local Realtor since 1999, and absolutely love what I do, and I can’t do it without you.

Thank you!

Kevin Coyle

Realtor  Broker  MBA  CRS
SLC Homes
M: (801) 243-0699


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