Under current law, you generally can’t claim any deduction for interest paid on a home equity loan. But you don’t necessarily have to come up empty tax-wise.

Strategy: Use the proceeds of a home equity loan for home improvements. If you take this approach, you can potentially qualify to deduct the interest. Is it legit? Absolutely! The IRS gave its stamp of approval to this clever tax technique. (IR-2018-32, 2/21/18)

Here’s the whole story: The tax law allows you to generally deduct “qualified residence interest” for a first residence and up to one other residence (commonly known as mortgage interest) paid during the year. To qualify for this deduction for itemizers, you must be legally obligated to pay the mortgage, and it must be secured by either your principal residence or one other home, like a vacation home. The deduction limit depends on whether the debt is an acquisition debt or a home equity debt.

1. Acquisition debt. This is a debt incurred to buy, build or substantially improve a first or second home. Prior to the Tax Cuts and Jobs Act (TCJA), mortgage interest paid on the first $1 million of acquisition debt was fully deductible.

2. Home equity debt. Any other mortgage debt, such as a home equity loan or line of credit, is treated as home equity debt. The mortgage interest paid on up to $100,000 of home equity debt was deductible regardless of how the proceeds were used. But the TCJA altered the tax landscape. For acquisition debt, the thresh old was lowered from $1 million to $750,000 for 2018 through 2025. This lower limit generally applies to debts incurred after December 15, 2017. Even worse, the deduction for interest on home equity debt was completely suspended for 2018 through 2025 by the TCJA. Tax loophole: If you take out a new home equity loan or line of credit and use the proceeds for home improvements—say, a finished basement or new deck or patio—the debt is treated as acquisition debt, rather than home equity debt. Reason: It is a debt incurred to “substantially improve” an eligible residence. Thus, the interest can be deducted going forward as long as you stay below the $750,000 threshold for acquisition debt. Just a small change in the way you handle matters can salvage a deduction. For instance, if you were planning to use funds stashed in a bank account for a home improvement and take out a home equity loan to help pay for some of your child’s college expenses, you might do the exact opposite. Take out a loan for the home improvement. This converts a nondeductible interest expense into a deductible one. Although there is no official guidance, the IRS has indicated certain common expenses that would qualify for this tax break, including the following: • Building an addition onto your home • Putting on a new roof • Replacing your HVAC system • Remodeling your kitchen or bathroom • Resurfacing your driveway. Tip: Note that minor repairs won’t suffice.