New tax law changes for 529 plans
Allows up to $10,000 of 529 plan accounts to be used for K-12 tuition and related expenses annually in addition to post-secondary qualified education expenses.
This means that it is possible to get money out of your 529 plan BEFORE you complete the FAFSA form without paying the penalty and taxes on the growth. Contact us if you would like to see if this makes sense for your family.
Tax Treatment Of Mortgage Interest Is Based On Use Not Loan Terms
Since the Tax Reform Act of 1986, the mortgage deduction had a limit of only deducting the interest on the first $1,000,000 of debt principal that was used to acquire, build, or substantially improve the primary residence (and was secured by that residence). Interest on any additional mortgage debt, or debt proceeds that were used for any other purpose, was only deductible for the next $100,000 of debt principal (and not deductible at all for AMT purposes).
Under the Tax Cuts and Jobs Act of 2017, though, the debt limit on deductibility for acquisition indebtedness is reduced to just $750,000 (albeit grandfathered for existing mortgages under the old higher $1M limit), and interest on home equity indebtedness is no longer deductible at all starting in 2018.
Notably, though, the determination of what is “acquisition indebtedness” – which remains deductible in 2018 and beyond – is based not on how the loan is structured or what the bank (or mortgage servicer) calls it, but how the mortgage proceeds were actually used. To the extent they were used to acquire, build, or substantially improve the primary residence that secures the loan, it is acquisition indebtedness – even in the form of a HELOC or home equity loan. On the other hand, even a “traditional” 30-year mortgage may not be fully deductible interest if it is a cash-out refinance and the cashed out portion was used for other purposes.
Acquisition indebtedness is defined as mortgage debt used to acquire, build, or substantially improve the taxpayer’s primary residence (or a designed second residence), and secured by that residence. Home equity indebtedness is defined as mortgage debt secured by the primary or second residence and used for any other purpose. (And in either case, the property must actually be used as a residence, and not as investment or rental property.)
These distinctions of acquisition versus home equity indebtedness were important, because interest on up to $1M [Now $750,000] of acquisition debt principal is deductible, while home equity indebtedness interest is only deductible on the first $100,000 of debt principal.
We strongly suggest getting advice on making your mortgage or 529 plan the most efficient it can be.
Whether it be for College Planning or Retirement Financial Planning, let’s PLAN
To schedule a time to meet with us please e mail davec@collegeplanningamerica.com or call 714-813-1703
Dave Coen RICP® is CEO of College Planning America and a Registered Representative at SageView Advisory
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