President Donald Trump's new tax law set off a false alarm for homeowners planning to borrow against the equity in their houses.

The legislation signed by Trump in December appeared to eliminate the deduction taxpayers get for the interest owed on home-equity loans, spooking the home remodeling industry whose customers often rely on the loans for projects. But after prodding from lobbying groups, the Internal Revenue Service clarified that borrowers could still use the deduction, as long as it's for home improvements.

The IRS guidance on home-equity debt is just the latest example of the agency's cleanup effort in the wake of the hastily passed law. Various industries and tax professionals are still struggling to understand its provisions and interpret lawmakers' intentions on changes including the pass-through deduction and international tax measures.

Since the end of last year, the agency has issued press releases specifying that hedge fund managers can't circumvent new carried interest rules with "S" corporations and that homeowners can deduct prepaid property taxes only in some instances.

Until the IRS statement late last month about the home-equity deduction, some housing groups including executives at the National Association of Home Builders said they didn't think it was clear the home-equity deduction had survived, at least in part.

The NAHB sent Treasury Secretary Steven Mnuchin a letter at the end of January arguing that the tax law, as written, should allow interest from home-equity loans and home-equity lines of credit to be deducted as long as the homeowner used the money for home improvements. They said their interpretation was backed up by long-accepted standards in the tax code.

"As most major remodeling projects are financed using debt secured by the buyer's home, the deductibility of interest paid on loans used to substantially improve a home is the lifeblood of the industry," the letter said.

Eric Smith, an IRS spokesman, said the news release came in response to multiple inquiries rather than from a specific group. He said the statement clarified what the law already said rather than made new rules.

Robert Criner, a remodeler in Newport News, Va., said that after the law passed, he thought the deduction for home-equity loans and for so-called HELOCs was dead. The ability to deduct HELOC interest is a deciding factor for some homeowners on how big a project to undertake or whether to do a remodel at all, according to Criner.

Throughout the tax-bill process "people were waiting to pull the trigger," said Criner, which he attributed to the HELOC issue and to broader confusion about the bill. Criner said even after the IRS clarification, only about half of his customers realize that they can still deduct the interest.

The confusion stemmed from the law saying it was eliminating interest for "home-equity indebtedness." Some borrowers, remodelers and others in the lending industry interpreted that as any kind of home-equity loan that taps equity to provide cash. But the tax code has long defined home-equity indebtedness as any kind of debt except loans taken out to acquire, construct or substantially improve a taxpayer's residence.

So if a borrower uses the loan to build a new bathroom, it would qualify for the deduction, but if it's used to consolidate credit card debt, it wouldn't qualify, according to the IRS's clarification.

In January, LendEDU, a comparison website for consumer financial products, surveyed 1,000 Americans who were home-equity loan borrowers, about half of whom said they used the money for home improvement. The company wanted to measure how aware they were that the new law limited home-equity deductibility.

The problem: None of the survey's answers were correct. LendEDU falsely believed the new law completely killed the home-equity interest deduction, and the survey results were reported in several mainstream and industry publications.

LendEDU CEO Nate Matherson said the company would put a clarification at the top of the survey. Noting that the IRS hadn't yet issued its guidance at the time of the survey, Matherson said, "At the time the survey was conducted, the methodology was accurate."

The NAHB, a lobbying group that represents small home builders, believed it had a good case but still wasn't completely sure that the IRS would agree with its interpretation, said David Logan, the association's director of tax and trade policy analysis.

The home-equity interest deduction wasn't a focus for the group last year when it was lobbying lawmakers on its bigger concerns with the bill such as the doubling of the standard deduction. Still, once the law came out, there was concern that eliminating home-equity interest deductions would have a "massive detrimental effect on remodelers," Logan said.

When the IRS agreed with the NAHB's interpretation, Logan said the group's remodelers were "exuberant."

Bloomberg News