Q: Is a home equity line of credit tax-deductible?
A: One of the benefits of homeownership is the availability of a tax deduction for the interest paid on a mortgage. If you also have a home equity loan or home equity line of credit, you may also be able to take a tax deduction for the interest paid on that loan.
Home equity loans and taxes
If you took out a home equity line of credit at the time you purchased your home in order to finance the acquisition of the property, such as an 80-10-10 loan with an 80-percent first mortgage, a 10-percent down payment and a 10-percent home equity loan, that mortgage is considered "home acquisition debt" by the IRS. Tax-deductible home acquisition debt is limited to $1 million (or $500,000 if married but filing separately) and you can deduct the interest paid on these loans.
If you took out your home equity line of credit at a later date to make home improvements and it is secured by your home, it is also considered home acquisition debt and is tax-deductible.
According to the IRS, a home equity loan or line of credit taken out for reasons other than to buy, build or improve your home is treated as home equity debt as long as it is secured by your home. Tax deductions on home equity debt are limited to the interest paid on loans up to $100,000 (or $50,000 if married but filing separately).
IRS Publication 936 addresses the topic of the tax deductibility of a home equity loan and a home equity line of credit with tables and examples that could apply to your personal situation. You may also want to consult with a tax professional to clarify the tax-deductible status of your home equity line of credit.
Michele Lerner contributed to this answer
A 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.