Thanks VictoriaD75,
Disclaimer: I am not a tax professional and know very little about tax law. No ideas or examples below should be taken seriously.
It is relatively clear what the IRS requires deductible interest to be associated with, that is, must be main home and/or substantially improve the main home.
What is still not clear to me has to do with the HELOC variety of this situation. HELOCs usually have a 10 year draw period. Not only is there an initial draw amount but the homeowner can pay down and borrow more as they please over the 10 year period. After that it goes into strictly repayment mode.
I have to assume that use of post-initial draws also qualifies for deduction, not just the initial draw. Is that correct?
If so, it seems like both examples below would be allowed. Are they both allowed?
Example 1:
I start a 100k maximum HELOC with a 100k initial draw. The initial draw is used to consolidate credit cards and buy a car. Five years later, the balance is 50k. I draw an additional 50k to add an addition to my main home. This would allow some portion of the yearly HELOC interest to be deducted.
Example 2:
I start a 100k maximum HELOC with a 100k initial draw. The initial draw is used to consolidate credit cards and buy a car. Two years later, the balance is 90k. I want to make a 50k addition to my main home. I have just received a 50k inheritance from a relative. I use this 50k to pay down the HELOC to 40k. A couple of weeks later I draw 50k from the HELOC to add an addition to my main home. This would allow some portion of the yearly HELOC interest to be deducted.
Thanks for any clarification,
Fred
