Ask Terry Questions Home Equity Line of Credit deduction lost

Home Equity Line of Credit deduction lost

By Terry Savage on February 03, 2018 | Financial Planning / Retirement

Hi Terry - My husband and I established a HELOC to fund our daughter's medical school education. She has been making monthly repayments since she graduated. It is not an "arm's length" loan. Up until the tax law changed, it worked fine: She repays us to cover lender interest and some principal, we expense the interest cost on our yearly income tax form. Last year the interest was over $1,400. With the new tax law effective in 2018, we lost the deduction. We have some long term savings to pay off the bank ourselves, and she would continue to repay us the loan as before, minimal or no interest. Does this sound like a good plan, our do you have another suggestion? To pay off HELOC would use about 30% of our long term savings, does not include any retirement or regular household r & m funds. Thanks, Terry

Terry Says

Here's the real question you want me to answer:  Will you sleep better without that loan over your head, or without 30 percent of your retirement savings available? Really, that's the issue.  Either way it's your money at stake here.  I do hope your daughter will keep paying off the loan, and it might be easier down the road if she could see the loan balance diminishing.  But the financial issue remains the same.  And what it REALLY means is that you have to increase your retirement savings to feel comfortable! By the way, check with your accountant, as you might not "need" the deduction with the new exemptions, and might still come out ahead.

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