Deductions & credits

Question 1. It depends on what the HELOC was used for.  If it was used for anything other than to buy, build or substantially improve your home that the mortgage is on, then no you can't include that portion.  If it was used for like a remodel or something then yes, you can include it.  The fact that the original loan was originally $450K doesn't affect anything.  The thing that matters is what the loan was used for.  

Question 2. If the HELOC was not used to buy, build or improve your home, then when your home was refinanced for the $500,000, you can only deduct $400,000 which would be the remaining balance of the original loan that was used to purchase the home. 

Basically, you need to go through the entire loan refinance history and can only include the amounts that were used to buy, build or substantially improve your home. See example. 

If you refinanced your home in 2012, with a balance on your mortgage of $225,000 and took out $75,000 to pay off debt. Your new balance was $300,000. The $225,000 is your original home purchase amount,  the $75,000 is not so that interest is not deductible. Your original home purchase price is now 75% of the mortgage balance.

If you refinance again a month later before making any payments (for easy math sake) and take out $400,000, of which you use $100,000 to buy a boat, you would only count 56% of the balance as your original home loan balance. (225,000/400,000=.5625) So with no other refinancing, your current loan balance is $300,000, you would only be able to deduct interest on 56.25% of the balance or $168,700 (300,000x .5625)

Now, if you used the $100,000 to build an addition onto your house instead of buying a boat with it, this would be counted as substantially improving your home, therefore the amount that would now have deductible interest would be 81.25% ((225,000+100,0000/400,000=.8125) In this situation, you would be able to deduct the interest on 81.25% of your current balance if there was no further financing.