Does a loan with a UCC-1 lien on a primary residence qualify as "secured by your home"?

[Anonymous]

I took out a home improvement/energy efficiency/solar loan to finance home improvements on my primary residence. The loan is classified as a personal loan (hence the bank will not provide a 1098), but it is secured with a UCC-1 lien.

Is the interest paid on that loan deductible?

IRS publication 530 states "To be deductible, the interest you pay must be on a loan secured by your main home or a second home, regardless of how the loan is labeled. The loan can be a first or second mortgage, a home improvement loan, a home equity loan, or a refinanced mortgage."

Pub 530 does not provide a definition of "secured by your home". However, IRS publication 936 lists as definition of "secured debt":

"You can deduct your home mortgage interest only if your mortgage is a secured debt.
A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that:
- Makes your ownership in a qualified home security for payment of the debt;
- Provides, in case of default, that your home could satisfy the debt;
- Is recorded or is otherwise perfected under any state or local law that applies.

In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender.
If you can't pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. In this publication, mortgage will refer to secured debt."

In light of these statements, does a UCC-1 lien satisfy the conditions mentioned above, making the interest on this loan deductible?

[Carl]

By your own words, it clearly states ""To be deductible, the interest you pay must be on a loan secured by your main home or a second home, regardless of how the loan is labeled. "

SO bottom line is, the interest is not deductible if it is not secured by your main home or second home REGARDLESS OF HOW THE LOAN IS LABELED.

For your own sake, please don't try playing semantics with the IRS, as you will lose.

[Anonymous]

Carl, thank you for your reply. I'm not trying to play semantics, though, merely trying to clarify what sounds ambiguous to me.

I don't understand why you emphasized the "label" part. The question I'm raising is about the other part of that sentence, "secured by your main home". Since a lien against a property/part thereof exists, it seems that would mean that the loan is in fact secured by it. But since it's ambiguous I was trying to clarify. If anything, the label part would seem to argue that it does not matter whether the loan is called a personal loan or whatever else, as long as it is secured, hence the question above. Or did I misunderstand your reply?

[PokerBroker357]

Hi @Anonymous .....I have a similar scenario/question.  I have a new pool loan, reported on credit report and loan statements as "Home Improvement Loan" and secured by a UCC.  I agree, it appears the IRS 936 language you quoted allows the interest  to be deductible.  I did not receive a 1098 for the interest paid from the Credit Union.  Did you ever get any resolution with this?  Thanks!

[Vanessa A]

No, you cannot deduct this interest. 

The lien would have to be directly on your home, not just your assets in general.  A mortgage lien will not take your bank accounts, vehicles or any other possessions, they will only foreclose on your home.  This means, the Home Improvement loan secured by a UCC does not meet the criteria of a loan secured by the home.