No, you can't take the deduction on the full $106k. You can only take the deduction on the interest for $100k. If the cash out is not used to buy, build, or substantially improve the home, that portion of the interest is considered home equity debt and is not deductible. To enter this in TurboTax:
- Answer No to Is this the original loan you used to buy your property?
- Answer Yes to Is this loan a home equity line of credit or a refinance of a previous loan
- Answer Yes to Did you take cash out when you got this loan?
- Answer No to Have you used the money from this loan exclusively on this home?
- Answer Help me figure this out on Let's see how much interest you can deduct this year.
- Enter the amount used to buy, build, or improve the home in the first field ($100k in this example) and the balance of the loan at the end of 2021 in the second field
The IRS allows your home equity debt to be paid off before the remainder of your deductible home mortgage. That means that all payments will reduce your home equity debt and will not reduce the principal or interest that you can deduct until the home equity debt is entirely paid off.
