Question

Interest related to home equity loans and home equity lines of credit (HELOC) are no longer deductible UNLESS they are used to buy, build, or substantially improve the home that secures the loan. If they meet this definition, then they meet the definition of acquisition indebtedness above and the interest may be deductible. What is the condition for deductibility of interest related to home equity loans and HELOC?

1) Interest related to home equity loans and HELOC is deductible regardless of how the funds are used.
2) Interest related to home equity loans and HELOC is deductible only if the funds are used to buy, build, or substantially improve the home that secures the loan.
3) Interest related to home equity loans and HELOC is deductible only if the funds are used for personal expenses.
4) Interest related to home equity loans and HELOC is not deductible under any circumstances.

Answer 1

Interest on home equity loans and HELOCs is deductible when used for buying, building, or substantially improving the securing home, fitting the definition of acquisition indebtedness.

Step-by-step explanation:

The deductibility of interest related to home equity loans and home equity lines of credit (HELOC) is contingent upon how the borrowed funds are utilized. Specifically, the interest is deductible only when the funds are used for acquiring, constructing, or significantly improving the residence that secures the loan. These actions would then fall under the category of acquisition indebtedness, which makes the interest potentially deductible.