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Most home-equity loan borrowers don’t understand how Trump’s tax code affects them

They could be in for a shock come tax season next year

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By Jacob Passy


Homeowners with home equity loans may be reaping the benefits of deducting interest paid in 2017, but they shouldn’t get used to it.

The Republican tax reform law killed the interest deduction on home equity debt. Previously, borrowers could deduct the interest paid on up to $100,000 in home equity loans or home equity lines of credit.

Unfortunately, it seems that borrowers haven’t gotten the memo. Only 4.4% of borrowers could correctly identify that the new tax code was disadvantageous to home-equity loan borrowers because it eliminated this deduction, according to a poll of 1,000 borrowers released this week.

Even worse: Over half of borrowers surveyed (54%) either thought that the new tax code positively affected the treatment of home equity loans or didn’t impact it at all.

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The amount of home-equity debt that Americans hold has shrunk in recent years, according to data from the Federal Reserve Bank of New York . As of the third quarter of 2017, the balances on home equity lines of credit totaled $448 billion, down from $472 billion in 2016 and $492 billion in 2015.

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A 52% majority of the home-equity debt-holders that the latest survey polled said their loans were used to fund home improvement projects. However, some Americans may be better off getting a personal loan rather than a home equity loan to pay for renovations.

Though personal loans typically carry a higher interest rate, they usually have a fixed rate and can be funded more quickly, making them a potentially more useful source of money for such projects.

Jacob Passy is a personal-finance reporter for MarketWatch and is based in New York.

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