No, the proceeds would need to be spent on the improvement within the timeframes to be considered qualified interest. #2 above: You build or substantially improve your home and take out the mortgage before the work is completed >> The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage. Answering NO last year was the appropriate response if the $$ was not used for improvements. Had those funds been used within 90 days of the loan date, the interest would have been deductible. For the interest to be deductible, the loan date would need to be within 90 days after the date the expense was incurred.
Not deducting deductible interest last year does not prevent you from deducting deductible interest this year. In your case, however, the interest was not deductible in either year.
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