If you hoped that Senate Republicans would treat homeowners and buyers more kindly in their tax overhaul plans than their colleagues did in the House, you were an optimist. It didn’t happen.
In fact, the Senate tax bill released two weeks ago is harsher on residential real estate in some areas than the House version, with two notable exceptions: Senate tax writers retained the current $1 million ceiling on home mortgage amounts that are eligible for interest deductions. The House bill seeks to cut that in half to $500,000. But the Senate’s seeming concession has limited value, given that only a small fraction of homeowners in the U.S. have mortgages of $500,000 to $1 million. Also, the Senate bill leaves intact mortgage-interest deductions on second homes; the House bill would eliminate them.
Here’s a quick look at some key punitive details in the Senate bill’s fine print that haven’t gotten much attention but could be important to you:
• Home equity loans: Under current law, you can borrow up to $100,000 in “home equity indebtedness” and write off the interest on that amount. Home equity loans have become enormously popular in recent years — especially in the form of lines of credit (HELOCs) — as owners’ equity holdings have soared to record levels. In the first quarter of 2017 alone, according to ATTOM Data Solutions, 227,000 new HELOCs worth $43.4 billion were originated around the country. HELOCs are hot.
Among the traditional attractions of HELOCs and other forms of home equity loans has been their flexibility. You can use the money you pull from your equity for whatever you like. That would change drastically under the Senate Republicans’ bill. It would erase the entire category known as “home equity indebtedness” from the tax code, pulling the rug out from under the booming HELOC market. Though the bill doesn’t get into operational details, homeowners with existing first mortgages might still be able to borrow against their equity, but they could be restricted to using the money for improvements to their principal residence.