HELOC Interest... Is it Tax Deductible? | The Kwak Brothers

HELOC Interest… Is it Tax Deductible?

Real Estate Notes with Al Curiel
May 26, 2020
Real Estate Market – New Stimulus, the Foreclosure Wave, and Crash
May 30, 2020
Show all

HELOC Interest… Is it Tax Deductible?

Is HELOC Interest deductible for taxes? In this article, I’m going to answer that question as well as dispel some common myths about HELOCs not being tax-deductible! – Especially when using a HELOC to pay off your mortgage

Watch this Article on our YouTube Channel: https://youtu.be/SKMnUEmDjlU

Hey what’s going on everyone, it’s Sam Kwak here and chances are, you’ve seen some of our other videos about using a HELOC or any line of credit to pay off your mortgage.

And I often get this question quite a bit… “But Sam, using a HELOC to pay off mortgage could mean that I wouldn’t be able to deduct the interest I’m paying, therefore, I don’t think it makes sense to use a HELOC to pay off my mortgage faster and save money on interest”

I probably get this question nearly everyday so I’ll answer this question once and for all

By the way, if you want more videos about HELOCs, paying off your mortgage faster, and even buying rental properties, subscribe to our YouTube channel!


And as always, just as a disclaimer – I’m not a CPA nor an accountant so don’t take any of this as tax advice. This is simply my interpretation and my commentary on what the tax laws say about HELOCs.

2nd Lien HELOCs

Now right out of the gate, when people often ask me about the tax deductibility on HELOCs, they’re often referring to a 2nd lien position HELOC. People automatically assume that HELOCs are not tax-deductible because they heard some other YouTubers say this.

Now, it is true that interest on 2nd lien position HELOC is not deductible when used to pay off the mortgage faster.

Prior to 2018, the tax laws were different to where the interest could have been deducted for a 2nd lien HELOC.

However, my argument to this is that if you’re using the accelerated banking strategy to pay down your mortgage faster and saving large sum of money, wouldn’t it be better that you pay a little bit of taxes to have saved thousands; potentially several hundred thousands of dollars.

Remember, a loan that has a 30 year amortization can cost quite a bit of money on interest. For example, a $100,000 loan with a 3% interest amortized out to 30 years equals to about 51,000. That’s a 51% effective interest rate.

Unfortunately the logic for some people are to pay the interest just so that they can get a write off…

It’s kinda like my friend who bought a $45,000 truck just to get a tax-write off on this business. He said it saved him couple thousand of dollars… First of all, he lives in the city… And he drives it like once a month. It was a needless expense and he would have had more money for other investments even after paying little bit of taxes. He would have been better off using that money to have bought a rental property for example.

So bottom-line, do you really want to waste potentially hundred thousands of dollars on interest just to save a few thousands? This is the classic saying of tripping over over a quarter to pick up a penny.

1st Lien HELOCs

But there is a way of making all of your HELOC interest deductible… Again, I’m not a CPA so be sure to consult with your own CPA.

There’s a little less known version of the HELOC which is the 1st lien HELOC. If there’s a 2nd lien HELOC, well… There’s also gotta be a first.

A 1st lien HELOC is essentially the only loan on a house. Some of my students on our program use a 1st lien HELOC to replace their mortgage completely.

By doing so, they can take advantage of the revolving nature of the line of credit and get the interest deduction.

Many of them will end up paying off their HELOC in 5-10 year on average and potentially saving THOUSANDS of dollars on interest. They also get to deduct the little interest they would pay over the 5-10 years average.

Plus, they have an open HELOC to use for buying rental properties thus increasing their income as well.

If you have not seen my video on paying off your mortgage faster using a HELOC, I’ll leave that video in the video description below!


So there you have it folks, if you’ve been wondering about the interest on a HELOC being tax deductible, hope this video gave you more clarity…