I took out a home improvement/energy efficiency/solar loan to finance home improvements on my primary residence. The loan is classified as a personal loan (hence the bank will not provide a 1098), but it is secured with a UCC-1 lien.
Is the interest paid on that loan deductible?
IRS publication 530 states "To be deductible, the interest you pay must be on a loan secured by your main home or a second home, regardless of how the loan is labeled. The loan can be a first or second mortgage, a home improvement loan, a home equity loan, or a refinanced mortgage."
Pub 530 does not provide a definition of "secured by your home". However, IRS publication 936 lists as definition of "secured debt":
"You can deduct your home mortgage interest only if your mortgage is a secured debt.
A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that:
- Makes your ownership in a qualified home security for payment of the debt;
- Provides, in case of default, that your home could satisfy the debt;
- Is recorded or is otherwise perfected under any state or local law that applies.
In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender.
If you can't pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. In this publication, mortgage will refer to secured debt."
In light of these statements, does a UCC-1 lien satisfy the conditions mentioned above, making the interest on this loan deductible?
