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JKCPA
JKCPA, CPA
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Experience:  CPA with tax experience.
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What does the IRS require for a person to be able to deduct

Resolved Question:

What does the IRS require for a person to be able to deduct intrest from a Home Equity Line of Credit? Thank You Eric
Submitted: 4 years ago.
Category: Tax
Expert:  JKCPA replied 4 years ago.

Hello,

 

Thanks for your question.

 

You should receive a Form 1098 from the lender after the end of the tax year showing how much interest you paid on the Home Equity Line of Credit (HELOC). You may deduct home equity debt interest, as an itemized deduction, if all the following conditions apply:

  • You are legally liable to pay the interest
  • You pay the interest in the tax year
  • The debt is secured with your home
  • You do not exceed certain limitations

The HELOC is considered by the IRS to be a second mortgage on a home. Any mortgage that is placed on a home that is not the primary mortgage or loan taken out in order to purchase, build or reconstruct the home is considered to be a second mortgage. Limitations that exist include that the individual cannot deduct more than $100,000 in interest per year. If a couple is married but filing separately, the individuals, on their own, may not deduct more than $50,000 each.

 

Interest paid on home equity debt is an adjustment for the Alternative Minimum Tax (AMT). You can figure the AMT adjustment for home equity debt using the Home Mortgage Interest Adjustment Worksheet on page 2 of the Instructions for Form 6251.

 

For more information, see Publication 936 (2008), Home Mortgage Interest Deduction

 

Hope this helps,

Best regards,

 

JKCPA, CPA
Category: Tax
Satisfied Customers: 5722
Experience: CPA with tax experience.
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