You can deduct interest on your acquisition debt only.
Acquisition debt is debt used to buy, build, or substantially remodel the home.
Let's suppose you bought the home for $150,000, with 10% down and a $135,000 conventional mortgage. You have paid off $10,000 and the current remaining balance is $125,000. You are not doing any remodeling. In that case, your current acquisition debt is $125,000, so that is the amount of HELOC balance that has tax deductible interest, no matter what amount you borrow. If you borrowed $150,000, then 83% of your interest would be tax deductible (125000/150000=0.833). Even though the original purchase price was $150,000, and the current value might be $180,000, your acquisition debt is limited to the amount of the remaining balance of the purchase mortgage that you plan to refinance.
Or, same set of facts, but you borrow $150,000 and use the other $25,000 to remodel the kitchen. In that case, you have $150,000 of acquisition debt, so all the interest is deductible.
Also, for loans made in 2018, there is a maximum deductibility of $750,000 of mortgage or HELOC debt.
