The Internal Revenue Service recently clarified the rules for homeowners who want to borrow against the equity in their home.
Dear Mr. Myers: I have read conflicting stories about how the tax-reform plan that President Donald Trump signed into law in December affects home-equity loans. Can you help?
Answer: Sure. Under the Tax Cuts and Jobs Act that the president signed on Dec. 22, interest on a new second mortgage, home-equity loan or home-equity line of credit can be deducted only if the proceeds are used to build, buy or “substantially improve” the property that secures the loan. In addition, total debt on the property (including any first mortgage) cannot exceed $750,000 for joint tax-filers and $375,000 for single-filers. If it does, interest on the overage can’t be written off.
The new rules only apply to loans issued on or after Dec. 15, 2017.
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Under the old law, homeowners could borrow against their built-up equity and use the proceeds any way they wished while still being able to deduct the interest on the new loan. A common strategy was to get a low-rate second mortgage or line of credit and then use the money to buy a new car or to pay off higher-rate, nondeductible credit cards or other debt.
That is no longer an option. Today, interest on the new loan proceeds can be deducted only if the money is poured back into the property. Any portion of the cash that’s used for other purposes is not deductible.
Talk to an accountant or similar professional for more details. I’d also usually recommend one or two free IRS publications that address this topic, but the agency still hasn’t updated them to reflect the recent changes in print or on its website, irs.gov.
Real estate trivia: Last year’s big increase in property values added an average of $15,000 to a typical U.S. homeowner’s equity, according to a new report by real estate data giant CoreLogic. Owners in California and Washington fared best, with respective equity gains of $44,000 and $40,000.
Dear Mr. Myers: We made a written offer to buy a house on March 22 and, following your previous advice, gave the sellers 72 hours to accept or reject it. The sellers rejected, but then sent us a certified letter last week stating that they are willing to accept our original offer and will sue us for “breach of contract” if we don’t honor it. Can they do that?
Answer: They can sue, but it’s doubtful that they would win.
When a seller rejects an offer, or simply doesn’t respond within a buyer’s specified timeframe for a decision, it usually renders the buyer’s first purchase offer null and void. The potential buyer can then make a new offer or usually can walk away without any financial penalties. Your real estate agent or a lawyer can provide more information.
Dear Mr. Myers: Are the TV and magazine advertisements that offer to sell parcels on the moon legitimate, or are they just a hoax?
Answer: I personally think that such purchases currently are worthless, but I don’t want you or any other interplanetary plaintiffs to sue me if I’m wrong decades from now.
For now, the Moon is like an ocean: Everyone can use it, but no one can own it. In 1967, the U.S. and the Soviet Union negotiated the Outer Space Treaty, which states that no nation can own a piece of the moon or an asteroid.
“You have a right to go up and take the lunar soil, but you don’t have any right to draw a square on the surface of the moon and say, ‘That square is mine,’” Stephen E. Doyle, a retired lawyer who served as NASA’s Deputy Director of Internal Affairs, told Popular Science magazine.
However, added Doyle, “if the Space Settlement Institute - which lobbies for private industry to develop land on other planets - has its way, new laws will allow space colonists to stake moon claims and start a colony.”
Several private-sector companies today sell one-acre parcels of land on the moon, replete with grant deeds, for about $30. But Doyle said that some sort of lunar governing body would need to be created to enforce property rights. Since no such agency exists, the deeds are little more than cool-looking pieces of paper.
April 12 is the International Day of Human Space Flight. And while the moon might be a nice place to visit, exactly who would want to live there is another question.
Daytime temperatures on the Moon easily can top 210 F, while nighttime temps can fall to -280 F. That’s because the moon, unlike the Earth, has no atmosphere to hold heat at night or to filter the sun’s rays during the day
Also: Our best-selling booklet “Straight Talk about Living Trusts” shines the light on the information readers need to determine whether forming an inexpensive trust would be a good idea based on their individual circumstances. For a copy, send $4 and a self-addressed, stamped envelope to D. Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405. Net proceeds are donated to the American Red Cross.
David W. Myers’ column is distributed by Cowles Syndicate Inc.