Posted on: 13th Jan, 2010 07:57 am
I have a FMV of $500,000 with a 15 yr fixed loan balance of $160,000. If I use a HELOC to pay off the balance will all of interest paid in a calendar year be deductible?
Yes it is
There are two classifications of mortgage debt. Acquisition debt and home equity debt. Acquisition debt is used to acquire the property, home equity debt is taken out after acquisition to extract equity.
Your first $1M of acquisition debt is fully tax deductible. Up to $100,000 of home equity debt is tax deductible, but you my lose deductibility if you're subject to the AMT.
In your case, even though the new loan is called a HELOC (home equity line of credit), it sounds like you're effectively refinancing acquisition debt. In that case, yes, it's fully deductible.
However, if you were to pay off the original debt with cash, and then take out the HELOC afterwards, only the interest on the first $100,000 would be tax deductible (subject to AMT tests and limits).
Your first $1M of acquisition debt is fully tax deductible. Up to $100,000 of home equity debt is tax deductible, but you my lose deductibility if you're subject to the AMT.
In your case, even though the new loan is called a HELOC (home equity line of credit), it sounds like you're effectively refinancing acquisition debt. In that case, yes, it's fully deductible.
However, if you were to pay off the original debt with cash, and then take out the HELOC afterwards, only the interest on the first $100,000 would be tax deductible (subject to AMT tests and limits).
