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There is a limit on the amount of debt that can be treated as home equity debt.
The total home equity debt on your main home and second home is limited to the
smaller of:
$100,000 ($50,000 if married filing separately), or

The total of each home's fair market value (FMV) reduced (but not below zero)
by the amount of its home acquisition debt and grandfathered debt. Determine
the FMV and the outstanding home acquisition and grandfathered debt for each
home on the date that the last debt was secured by the home.

Example.

You own one home that you bought in 1998. Its FMV now is $110,000, and the
current balance on your original mortgage (home acquisition debt) is $95,000.
Bank M offers you a home mortgage loan of 125% of the FMV of the home less any
outstanding mortgages or other liens. To consolidate some of your other debts,
you take out a $42,500 home mortgage loan [(125% × $110,000) - $95,000] with
Bank M.

Your home equity debt is limited to $15,000. This is the smaller of:

$100,000, the maximum limit, or

$15,000, the amount that the FMV of $110,000 exceeds the amount of home
acquisition debt of $95,000.

Interest on amounts over the home equity debt limit (such as the interest on
$27,500 [$42,500 - $15,000] in the preceding example) generally is treated as
personal interest and is not deductible. But if the proceeds of the loan were
used for investment, business, or other deductible purposes, the interest may
be deductible. If it is, see the Table 1 Instructions for line 13 for an
explanation of how to allocate the excess interest.

Part of home not a qualified home. To figure the limit on your home equity
debt, you must divide the FMV of your home between the part that is a qualified
home and any part that is not a qualified home. See Divided use of your home
under Qualified Home in Part I.

Fair market value (FMV). This is the price at which the home would change
hands between you and a buyer, neither having to sell or buy, and both having
reasonable knowledge of all relevant facts. Sales of similar homes in your
area, on about the same date your last debt was secured by the home, may be
helpful in figuring the FMV.


"Jack" - John H. Fisher - TaxService[at]aol.com
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=

Is a home equity line of credit tax deductable?

Thanks again for all your helpful advice