Changes to Home Loans and Equity Loans
TCJA reduced the deduction for some home loans and completely eliminated deduction of interest on equity loans. These changes will impact many taxpayers.
Taxpayers who use funds from loans secured by a home must be able to trace the funds to home improvement and other uses then reduce the deduction shown on the forms 1098 from their lender by the appropriate ratio. The taxpayer must retain substantiation of the trace of each dollar to its final use for the life of the loan because while the loan may have been taken out years past the statute of limitations, interest is current.
A taxpayer may choose to treat any debt secured by a qualified residence as not secured by the home.  This is known as a “10T” election. This election applies to the entire secured debt as opposed to the allocation tracing approach. The reason for such an election is that interest on a debt secured by a home is classed as Qualified Home Equity Interest subject to limits that apply to same. The 10T election establishes a different classification to which the limits may be different.