"How much of your loan did you use to build, remodel, or repair the property it's secured by?" I assume this means only expenses/improvements/repairs in 2022?

[DavidD66]

Not necessarily.  If you took out the loan to remodel your house in December 2022, and haven't yet done all the renovations, but intend to use 100% for renovations, then enter the full amount of the loan.  If you took a loan for renovations and to pay off credit cards, excluded the amount that was, or will be used to pay off credit cards.

[joeyT44]

Thanks for your reply, but that's not quite what I was asking. Let me see if I can be clearer: Can we only deduct the amount from our HELOC that was spent in TY 2022?

For example, in 2021, we installed a new lawn and new irrigation system, which we did not deduct on last year's taxes, as well as all new Andersen windows on the first floor of our house, which we finished paying off in 2022.

As a result, we are also still paying off our HELOC balance for these home improvement expenditures, so I don't know if this is also what makes these deductions relevant now.

[DawnC]

You can only deduct the interest on the HELOC if the loan proceeds were used to buy, build, remodel, or substantially improve the home.   Don't include any amount of principal that you have not or will not use to improve the home.   If you borrowed 100K and only used 50K to improve the home, you can only deduct interest on 50K.    If you are in the process of making improvements, include those amounts, but any interest on the principal not used to improve the home has to be excluded.   

If you’ve ever used part of this loan to pay for things other than this home, you cannot deduct the interest from that amount of the loan, even if the transaction didn’t take place this year.  See HELOC Mortgage.  

[cjhowland]

What got me confused was the fact that TurboTax neglects to specify "buy" as in pay off the original mortgage which was used 100% to purchase the home. Here is the question as it is in the software "How much of your loan did you use to build, remodel, or repair the property it's secured by?" No mention of buy or payoff so I was terribly confused by this. So, just to be clear, if I refinanced my home for 400k and the payoff was 300k and I used the 100k to pay off debt, buy a vehicle, etc - no home improvements, I would put 300k for an answer?

[Carl]

Example:

It's 2017 and you owe $100,000 on your loan. In that tax year you refiance the loan for $150,000 and after using the proceeds to pay off the old loan, you have $50,000 left. You put that $50,000 in the bank and do nothing with it for the rest of the 2017 tax year.  For 2017, you can only deduct the percentage of the interest equal to the percentage of the refi loan used to pay off the old loan. That was $100,000. So only 66.6% of the interest paid on the new refi loan is deductible from this point forward.

In 2018 you spend $25,000 for new windows and a new roof on the same house that secures the loan. So in 2018 you can claim the percentage of interest that is equal to the percentage of the refi loan that was used to "buy, build, or improve" that same home that secures the loan. So 125,000 is 83.3% of the $150,000 re-fi loan. YOu can claim 83.3% of the interest paid in 2018 on that loan, and all tax years going forward.

In 2020 you spend $25,000 to enlarge the attached garage from a 1-car to a 2-car garage. So now you spent all of the money from the refi to "buy, build" or improve" the house that secures the loan. For 2020 and beyond, you can claim 100% of the interest.