J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

15.3 Home Equity Loans

Mortgages that are not used to buy, build or improve your principal residence and/or second home (these are acquisition debt; see 15.2), are considered home equity debt. Interest you pay on home equity debt of up to $100,000 ($50,000 if married filing separately) is generally deductible, but the debt limit may be smaller in some cases depending on the value of the residence and the amount of acquisition debt; see below. In addition, as discussed in 15.2, debt you incurred to buy, build or improve your home may also qualify as home equity debt to the extent that such debt exceeds the $1 million acquisition debt limit ($500,000 if married filing separately).

The limit on home equity debt secured by your first or second home (15.1) is the lesser of:

1. $100,000, or $50,000 if married filing separately, or

2. The fair market value of your principal residence and second home (15.1), reduced by the amount of acquisition debt (15.2) and by any “grandfathered” (pre–October 14, 1987) mortgages (15.1). According to the IRS, fair market value, acquisition debt, and grandfathered debt are determined on the date that the last debt was secured by the home.

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Planning Reminder

Home Equity Loan To Pay Consumer Debts

Interest on consumer loans is not deductible but, within limits, you can deduct interest on a home equity line-of-credit mortgage to ...