What Does Tax Reform Mean for Homeowners

By Andy Hoffman, CFP®
January 24, 2018

(Part one of commentary series on tax reform)

Inside of home
Ushering in the greatest change to the tax code since the 1980s will keep most tax professionals busy over the next few years now that the Tax Cuts and Jobs bill has been signed into law. In this commentary, Commerce Trust Company Financial Planning Analyst Andy Hoffman, CFP®, puts the spotlight on the mortgage deduction and how it may affect you and your family.

Q. What specifically does the new tax reform bill mean for homeowners?

A. The president signed into law the tax reform bill in late December, and it contains provisions that could be broad-reaching in scope for taxpayers at many levels. Among the changes are several impacts for homeowners. With $448 billion in home equity loans outstanding at the start of 2017 and $13 trillion in mortgages outstanding,1 many homeowners will be affected.

Q. I am thinking about purchasing a new home in 2018. Will the interest on the mortgage still be deductible?

A. It depends on the amount of the mortgage. Interest associated with loans up to $750,000 is still deductible.

Q. What if I purchased a home in 2017 with a mortgage of $1 million? Will I not be able to fully deduct the interest since it is above the new limit of $750,000?

A. Mortgages incurred before December 15, 2017 will remain fully deductible up to the prior limit of $1 million. The new limit only applies to mortgages incurred after this date.

Q. I purchased a car using my home equity line of credit. Can I still deduct the interest incurred on this loan?

A. No, the new law eliminates the deductibility of this interest. If the line of credit is used to assist in acquiring a home or used to substantially improve a residence, the interest would be deductible, assuming the total acquisition debt is below the new limit of $750,000.

Q. Does it still make sense to utilize a home equity line of credit? Should I try to pay down my balance?

A. It depends on each person’s individual situation. For most people, accessing the equity in their home is still going to be the cheapest form of financing. Even without the tax deductibility, the interest rates associated with these loans are still typically lower than the average credit card. If the home equity line has a variable interest rate, it is important to monitor the fluctuations. If the interest rate begins to rise, it might make sense to accelerate the payments.

Q. Are there other financing options available that I should consider?

A. Homeowners may look for other sources to fund borrowing needs such as personal loans or securities-backed loans. Some borrowers may be able to utilize a line of credit linked to their taxable investments. These interest rates are typically even lower than a traditional home equity line of credit.

Q. Can I refinance my existing $1 million mortgage this year without losing the full deductibility of interest?

A. Yes, homeowners with existing mortgages that were incurred before December 15, 2017 can refinance and still maintain the deductibility up to the prior limit of $1 million. This does not apply to cash out refinancing. For example, someone cannot refinance a mortgage with a balance of $500,000 with a new loan of $700,000 and be able to fully deduct the interest. Only interest associated with the $500,000 balance will be deductible.

Q. Who should I contact to evaluate my options?

A. You can certainly contact your Commerce relationship manager to start the conversation on how the new rules may impact your situation. It is important to contact your tax advisor to review all available options for borrowing before making a decision. This topic is very complex and the IRS has not yet issued a complete set of guidelines. If you would like to discuss your financial planning options with a Commerce Trust financial planner, just email Andy Hoffman at andy.hoffman@commercebank.com, or call this toll-free number, 800-892-7100, ext 1-7329.


*Always consult with your CPA and professional advisor on matters involving income taxes.

Past performance is no guarantee of future results, and the opinions and other information in the commentary are as of January 17, 2018. This summary is intended to provide general information only and is reflective of the opinions of Commerce Trust Company.

This material is not a recommendation of any particular security, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified attorney, tax advisor or investment professional. Diversification does not guarantee a profit or protect against all risk.

Commerce does not provide tax advice or legal advice to customers. Consult a tax specialist regarding tax implications related to any product and specific financial situation.

Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Commerce Trust Company is a division of Commerce Bank.



Andy Hoffman, CFP® Trust Officer, Private Client Advisor Commerce Trust Company
Andy is a private client advisor for Commerce Trust Company. He serves as a consultant and relationship manager providing clients with personalized objective advice and oversight across all of our services, including trust administration, financial advisory services, private banking, and investment management.

Andy facilitates all aspects of relationship management for the client team, including administering complex trusts, maintaining client communication, and coordinating with internal and external partners to deliver a superior client experience. He joined Commerce in 2016 with ten years of industry experience.

Andy received his Bachelor of Science degree in finance/economics and Master in Business Administration with a concentration in finance from Rockhurst University. He has achieved the designations of Certified Trust and Financial Advisor and CERTIFIED FINANCIAL PLANNER™. Andy is a member of St. Ambrose Catholic Church and the Crusaders Club at St. Ambrose. He enjoys spending time with his wife Megan, daughter, Maggie, and two dogs, Mia and Bowser. He also enjoys watching the Blues, Cardinals, and Illinois basketball and football.