the IRS said that despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labelled. The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.
Under the new law, for example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not. As under prior law, the loan must be secured by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements.
1) before construction begins, the loan does not qualify as acquisition debt and interest incurred during that period is personal interest.
2) The construction must not take more than 24 months. after that its personal interest
3) since the law includes improvements, there's no reason why a detached structure would not qualify. for examples an outside swimming pool or detached garage or shed.
4) loan proceeds must be directly traceable to construction
