For tax years 2018 to 2025, when can a borrower write off the interest on a home equity loan?

The correct response is rooted in the specific tax changes that have been made regarding home equity loans from the Tax Cuts and Jobs Act. For tax years 2018 to 2025, the Internal Revenue Service (IRS) allows taxpayers to deduct interest on home equity loans only when the borrowed funds are used to purchase, build, or significantly improve the home that secures the loan. This means that if the homeowner takes out a home equity loan and uses that money to undertake renovations or to buy a new property, then they can deduct the interest paid on that loan.

This restriction emphasizes the idea that the tax benefits of home equity loans are intended to promote homeownership and investments in property improvement rather than providing a broad deduction for personal expenses or other unrelated financial needs. As a result, using the funds for general personal expenses or to pay off other debts does not qualify for the interest deduction under these specific guidelines. The $100,000 threshold typically associated with home equity loans is a common misconception; while it used to be a standard limit for interest deductibility, current regulations based on how the funds are utilized have taken precedence. Thus, any interest deduction is directly tied to the purpose of the loan funds relating to home improvement or acquisition.