A house is much more than just a shelter. For many homeowners, it serves as a private bank.

When structured properly, the money you can draw from the equity in your home can provide a nice tax break. In most cases, a homeowner can deduct interest paid on a home equity loan or home equity line of credit (HELOC) of up to $100,000.

The key phrase, however, is "in most cases." There are some deductibility limits. The alternative minimum tax also might also negate the benefits. So before tapping into the residential vault, homeowners should carefully evaluate their overall financial needs and tax situation.

Many uses, one big tax break
Home equity funds are often used to pay for home improvements, remodeling and renovations, college costs or consolidate personal loans and credit card debt. By leveraging the money already put into a house, an owner typically has access to larger sums of money to pay for these items.

And, of course, there is the tax advantage.

"When you talk about taxation and home equity, you primarily look at the deductibility of the interest," says Jim Hiles, a certified financial planner with CBIZ Wealth Management in New York. The tax law allows a borrower to deduct interest on a home equity loan or a combination of loans up to $100,000, regardless of how the money is used.

"It certainly is a popular way to pay," says Hiles, "if you can deduct the interest."

It's that "if" that trips up some home equity borrowers. Whether it can be deducted and exactly how much interest on a home equity loan is deductible depends on several factors.

Interest on $100,000 ... maybe
Most homeowners focus on the $100,000 amount that's usually touted as "deductible" in ads for home equity products. But borrowers also need to be aware of how their property's fair market value and any existing mortgage could affect the tax break.

When the combination of all loans secured by a home, including the first mortgage and any other equity loans, are more than the property's fair market value, the interest on the portion of debt that exceeds the home's value is not deductible.

For example, you have a $95,000 mortgage on your home, which is now worth $110,000. Your bank says you qualify for a 125 percent loan-to-value equity loan of $42,500 ($110,000 x 125 percent = $137,500 minus $95,000 left on your first mortgage = $42,500). Because your son has outstanding college tuition bills and you'd also like to buy him a car to get to and from school, you take the bank up on the offer, planning to deduct the interest on the equity loan on your taxes. It is, after all, well below the $100,000 limit.