Month: February 2018

Can You Deduct Interest on a Home Equity Loan Used to Remodel Your Home?

Leave a comment

In short, yes.

Debt secured by a first or second home and used to improve the place has always been considered acquisition indebtedness, so the new law’s crackdown on home equity loans doesn’t apply. After 2017, you can no longer deduct interest on home equity debt used for other purposes, such as to buy a car, pay off credit card debt, or pay college tuition. Remember when we changed the Texas Constitution to allow borrowing on the equity in your farm, ranch, or home for purposes other than home improvements? It was the early 1990s. Well, you can still borrow on your equity for other purposes, you just can’t deduct the interest.

There is also a new limit on eligible acquisition mortgage debt. The new law limits the deductibility of interest on acquisition indebtedness to $750,000 for tax years after December 31, 2017. The new law allows homeowners with existing mortgages to continue to deduct interest on a total of $1 million of debt for a first and second home, but for new buyers, the $1 million limit fell to $750,000 for a first and second home.

When it comes to refinancing your mortgage, homeowners can refinance mortgage debt up to $1 million that existed on December 14, 2017, and still deduct the interest. But the new loan cannot exceed the amount of the mortgage being refinanced, unless used to improve your home.

Example: If Joe has a $1 million mortgage he has paid down to $800,000, then he can refinance up to $800,000 of debt and continue to deduct interest on it. If he refinances for $900,000 and uses the $100,000 of cash to upgrade the home, then he could deduct the interest on the $900,000. But if he uses the $100,000 for other purposes, such as paying off credit card debt, then he couldn’t deduct interest on any of the $900,000 refinancing. I hope this helps.

That is all for today. I look forward to visiting with you next week.  In the meantime, don’t hesitate to reach out with questions.

Attention Small Business Owners: Don’t Forget Your Franchise Tax Report

Leave a comment

Everyone seems to remember their federal tax returns, but for small business owners, state tax returns are also due. If you have a small business and you filed Articles with the Secretary of State to get state law protection in some form, such as an LLC, or a corporation, or another form of protection suitable to your needs, then you will need to file a Texas Franchise Tax Report and a Public Information Report by May 15, 2018.

These reports must be filed electronically and to file electronically you must have your Webfile Number. The Texas Comptroller of Public Accounts sent you a reminder last week that your Franchise Tax Report is coming due. This reminder will have all the information your CPA (or you) will need to file the return electronically, including your Webfile Number. Please be sure to keep this form and get it to your CPA as soon as possible along with your federal tax information — and definitely before May 15.

Hurricane Harvey Casualty Loss and Form 4684

1 Comment

As Tax Day draws nearer, I’ve had a number of questions about Hurricane Harvey and casualty loss. Today, I’ll walk you through what you need to file Form 4684 for casualty loss deductions with your 2017 tax return.

Form 4684, Casualties and Thefts was designed especially for storms like Hurricane Harvey. In 2017, you will be able to take an itemized deduction by completing the form and attaching it to your Form 1040. Also, it’s important to know that twenty counties along the Texas Gulf Coast, including Harris County, were Presidentially Declared Disaster Areas. Once the President declares an area a Presidentially Declared Disaster Area, then the IRS can administratively make temporary changes to the law, such as extending the due dates of returns and estimated tax payments, and they can lift the 10% of AGI threshold for casualty losses. And that is what they did. If your home was flooded and your personal possessions were lost in the flood, then you need to complete Form 4684.

Here is what you will need to complete the form:

  • The cost or basis of your home
  • Your insurance or other reimbursement (ie: FEMA)
  • Your fair market value before the storm
  • Your fair market value after the storm

This is the information you will need to complete your casualty loss deduction. If you struggle with any of these items, such as the FMV of your home after the storm, don’t hesitate to ask your realtor or real estate appraiser, or contact the Harris County Appraisal District. If you need any help with any of this, then please give me a call.

That is all today. I look forward to visiting with you next week. In the meantime, please let me know if you have any questions — you can call my office at (713) 785-8939 or leave a comment on this post to get in touch.