Is the HELOC a tax write off?

[mrpaseo]

The interest paid I mean.

Thanks,
Ray

[ecoadapt]

One of the best aspects of a home equity line of credit (HELOC), is that the interest is often tax deductible. Because a HELOC is technically considered a home loan, most state and federal governments allow borrowers to deduct a significant portion of the interest they pay.

[bjl584]

Yes, but there may be exceptions for income or by state. Check with your accountant before assuming you can write off the interest on your taxes.

[dczech09]

The interest can be deducted from your taxable income. However, just like mortgage interest, it does not reduce taxes dollar-for-dollar.

Also the deduction only applies if you itemize. So if you are taking the standard deduction, it is irrelevant.

[LMA]

Yes it is.

[jpg7n16]

Here is the IRS's reply to your exact question

From: Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)

Question: Is interest on a home equity line of credit deductible as a second mortgage?


Answer: You may deduct home equity debt interest, as an itemized deduction, if all the following conditions apply:

• You are legally liable to pay the interest
• You pay the interest in the tax year
• The debt is secured with your home
• The home equity debt is limited to the fair market value of the home reduced by home acquisition debt, up to a total of $100,000.

In other words, you can only deduct interest you paid (not that accrued) during the year, such that the loan does not make your total debt MORE than what your house is worth. And capped at HELOC of $100k.

Example 1: (with easy numbers)

You have a $200k house with a $160k 1st mortgage. You borrow $40k on the HELOC.

Home worth: $200k ; Borrowed: $200k --- all interest paid is deductible.


Subsequently, the value of your home falls to $180k. No changes to debt amounts.

Home worth: $180k ; Borrowed: $200k --- only interest on the 1st $20k of your HELOC is deductible.

$180k home - ($160k 1st mortgage) = $20k HELOC amount to consider.


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Example 2: (Showing the $100k restriction)


You have a paid for $200k home. Due to medical expenses, you take a HELOC for $150k.

Interest on only $100k is deductible - not the full $150k.