In light of the mortgage crisis and lending restrictions, we thought it may be useful to provide some information around deducting any HOME EQUITY DEBT (i.e. borrowing against the equity of your home).
Per Publication 936 from the IRS, interest paid on debt collateralized by a home is deductible, as an itemized deduction, to the lesser of:
-$100,000 (filing jointly) or $50,000 (filing single)
or
-Fair Market Value of the home, reduced by any remaining acquisition or grandfathered debt
This is an itemized deduction, so it’s only applicable if your itemized deductions are greater than your standard deduction. In this case, it would be proper to assume you are itemizing if you are paying a mortgage with interest. Unfortunately, in the current market there are many individuals with no equity in his or her residence – however, if you are struggling in the current economy, and need to borrow to pay for college or medical bills, remember this deduction prior to deciding which loan type to use.
NOTE* Interest paid on personal loans is not deductible – depending on the type of home equity loan you select, you may NOT be able to deduct interest (reverse mortgage, 3rd home, etc.). Be sure to check with your CPA prior to making any of these decisions!
Vinings Accounting Group Blog 