Yes, it refers to the entire history of the loan. So you will need to calculate the amount that is strictly related to buying, building or substantially improving your home. The interest on any portion that was used for any other reason is not tax deductible.
Example of how to calculate this number is below.
If you refinanced your home in 2003, 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.
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