Only the interest on the proportion of the loan proceeds used for home improvements may be deductible as mortgage interest. The proportion of the proceeds used to purchase an investment may be deductible as investment interest.
Mortgage interest is only deductible on secured loans. To qualify, the loan must also be secured by the property it was used to buy, build, or improve. Beginning in 2018, only the amount of a home loan that is used to buy, build, or improve your home qualifies for the home mortgage interest deduction.
When you borrow money to buy property for investment purposes, any interest you pay on that borrowed money becomes an "investment interest expense." For example, say you take out a $5,000 loan against your home equity and use the money to buy stock. The interest on that loan is investment interest. (It wouldn't be deductible as mortgage interest because you didn't use the money to buy, build or improve your home.) If you use only part of the borrowed money for investments, you can deduct only a proportional amount of the interest you pay. To actually claim the deduction for investment interest expenses, you must itemize your deductions.
Investment interest goes on Schedule A, under "Interest You Paid." To enter it in TurboTax, under Deductions & Credits, select Retirement and Investments and then select Investment Interest Expenses. Please see this TurboTax tips article for more information.
When you refinance a mortgage that was treated as acquisition debt, the new mortgage is also treated as acquisition debt up to the balance of the old mortgage. The excess over the old mortgage balance not used to buy, build, or substantially improve your home could previously qualify as home equity debt. For tax years prior to 2018, interest on up to $100,000 of that excess debt may be deductible under the rules for home equity debt.
Please see this article and this one for more information on home mortgages from TurboTax. See IRS Publication 936 for more information on mortgage interest deductions.
See this article for more information on mortgage interest on a second home.
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