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2nd Mortgage Interest:

Tax Law Changes

Second Mortgage Interest no longer tax deductible? True. Kind of. It’s complicated. A brief summary…

Starting in 2018, 2nd Mortgage/Home Equity Line of Credit mortgage interest is NO LONGER Tax Deductible. UNLESS, the funds are used to improve the property they are pulled out against.


-if the funds are used to improve the property they were borrowed against, then the mortgage interest IS deductible.

-if the funds are used for ANY other purpose than improving the property they are borrowed against, then the interest is NOT deductible.

Outside the Box Strategy…

-using a Cash Out Refinance. In essence a new 1st mortgage where you pay off the old loan AND get the Cash Out you need. All in 1 loan. With no 2nd mortgage. Thus, all the interest is tax deductible.

The decision to Cash-out Refinance is entirely relative to 1) current interest rate 2) how much money on top of the mortgage payoff you need 3) what you plan on doing with the money.

Example :

It doesn’t make sense to Refinance a balance of $200K at 4.25% to a 4.75% just to borrow $20K in cash. Unless you need the money desperately for bail. Or to skip town. Or maybe payoff an Italian bookie name Vinnie.

However to borrow $75K on top of the mortgage, that’s a different story. What are you doing with the $75K? Used to pay down other debt at higher non tax deductible interest rates? A new business opportunity?

Summary… know the tax law. And if you don’t, hire people who do. As GI-JOE wisely advised us, knowing is half the battle.

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