limits on HELOC interest
About six years ago, I bought my condo for $99,000.
It's now worth $300,000. Six months ago, I took out $100,000 on
a cash-out refi. My balance is $185,000. I am thinking about getting
a home equity line of credit to purchase a new car so I can get
the home interest deduction, if possible. Will my HELOC be tax deductible?
Thanks. -- Audrey
Home mortgage interest is deductible as an itemized deduction depending
on various thresholds and whether it is to purchase or cash out
on a refinance.
First home mortgage debt incurred to purchase a primary
and second residence is deductible, provided the total acquisition
debt is less than $1 million. In your case, you borrowed $99,000
or less. You would still have the ability to borrow and deduct the
interest on another $901,000 in debt if you acquire a second residence.
When you refinance acquisition debt or take out additional
debt such as a HELOC, you can deduct the interest on such debt if
you use it to improve your residence and on up to an additional
$100,000 that you can use for any purpose, except for the purchase
of tax-exempt securities such as municipal bonds. If you use the
$100,000 to buy a second home, then it gets thrown back into the
$1 million pot.
In your case, you already borrowed $100,000 but did
not state what it was for. If you used the $100,000 to purchase
investments, you can claim the interest on the mortgage as either
home mortgage interest or investment interest.
If you use it to take an around-the-world trip, then
you can claim it only as mortgage interest.
Interest on borrowings in excess of the $100,000 would
not be deductible unless it's for business or investment purposes,
which would not be the case if you borrowed to purchase a new auto,
unless some of the prior $100,000 was for improvements or investments.
For example if you used $20,000 of the prior $100,000
to make improvements to the condo, then you could borrow up to an
additional $20,000 to purchase the car and claim the interest as