How do I designate Interest on Schedule A that is home equity interest not deductible for 2018 so that it is reflected in the "Tax Reform Impact Summary"?

[George4Tacks]

Wait for the 2018 tax software to come out. OR use Ctrl + E to make some comments in the input for 2017 interest paid "Cool for 2018" and "Not cool for 2018" and appropriate amounts. Please feel free to select your own text to use. Your clients will not see my descriptions, but they will see yours. 

[MLPF]

I'm sorry I did not make myself clear.  I would like the "Tax reform impact summary" reflect losing HEQ Loan interest deduction.

[abctax55]

Ain't going to happen.  TRIS is to compare apples to apples.  To do 2018 projections, you'll need to use the tax planner program.

[MLPF]

It is apples to apples.  The "Summary" is eliminating the miscellaneous deductions, so why not a separate input for HEQ Loan interest so it can eliminate that also?

[abctax55]

Guess they didn't think of that.   There's also the fact that the child credit if kid turns 17 is still there.
Take it up with the programmers...but I think they are more focused on what needs to be done to implement the "extenders"

[George4Tacks]

@MLPF  That summary is just a teaser. Lacerte really wants you to use Tax Planner

[MtnTaxMan]

OK - how about this? Client takes out a 1st in 2002 for $360,000. Then in 2003, they take out a HELOC for $60,000 and use $18,450 on credit card debt and $39,550 to build a pool for their main home. In 2009, they refinance and take out $25,000 and use $16,000 on credit card debt and $9,000 to build a room. Just how are we supposed to split the non-qualifying debt from the qualifying debt in determining how much interest is qualifying for 2018? Are the payments first applied to non qualifying, to qualifying, or in a ratio? I'm sure everyone else's clients know EXACTLY how much equity they spent and how much was credit card debt and how much was home improvements. But mine do not. THIS IS AN IMPOSSIBLE CALCATION and Congress are a bunch of stupid $&^^%#% morons for even considering that this is calculable. The law should have applied to NEW HOME EQUITY  DEBT ONLY and mandated that the banks indicate how much of any future loan is qualifying debt and non-qualifying debt. Unless I receive clear and concise directions on how to calculate this, ALL THE DEBT will be qualified.  Heck, most clients won't even remember if they took equity out of a refinance or not. Has to be one of the most RIDICULOUS laws I've ever heard of.  Naturally, the IRS will disallow ALL THE INTEREST unless we can prove the calculation - and the calculation cannot be proven. It's a total setup.

[itonewbie]

Guess we can't always agree with every statute and regulation but would be required to follow it or take a position based on rules for substantial authority and reasonable basis if we are to keep our clients out of trouble and not risk penalties and/or losing our license.

[MtnTaxMan]

Example 2  - just asked a client today that refinanced in 2016 if he took any equity out on the loan. Yes. How much? $6,000. What was it used for? Credit Cards. OK not deductible for 2018. Client thinks new loan was $178,000. We will need the disclosures. Payments are $827. 2018 interest paid will be $6,482. Principle paid (or to be paid) on refinanced loan is $3440. Please provide a formula for determining the qualifying and non-qualifying interest portions. is the equity portion paid first? The acquisition portion paid first? Use a ratio? The IRS to my knowledge has not issued guidance on this. Unless they do so, since the area of the new law would be considered "gray", I will consider the acquisition portion as being paid first, much like distributions from a ROTH IRA are deemed to come from contributions first, then earnings.

[MtnTaxMan]

Oh and the Tax Planner is worthless. If it uses the standard deduction for Feds it uses the SD for California as well.  I have to override CA to itemize. The Planner should allow the entry of all itemized deductions and then use the SD for Feds and Itemize for CA.

[itonewbie]

Unless I've misread your messages, the existing regulations under §§1.163-10T and §§1.163-8T already cover the ordering rules you are looking for.  Since TCJA does not rewrite §163(h)(3) but temporarily reduces the dollar limits for acquisition indebtedness and suspends deductions for interest paid on home equity loans, the existing regulations will continue to apply.

The only point that the IRS felt the need to clarify is that interest paid on home equity loan taken out to buy, build, or substantially improve the existing home, with which the loan is secured, will remain deductible under TCJA, to the extent it is within the dollar limit and the other conditions are met (see IR 2018-32).  Again, this is not a new law or regulation, only a clarification of how the existing rules will apply within the context of TCJA.

[abctax55]

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