Mortgage Interest - HELOC

[martin3]

In 2025, I refinanced a HELOC. I needed a larger limit so they replaced the first with a new one.   On the new HELOC, when they ask the 3 questions, which do I check off - "This loan is a HELOC", or "This loan is a refinancing of a prior loan"?

[Vanessa A]

If it does not allow you to check both, then just check the HELOC since it is still a HELOC. 

[martin3]

Ok thanks. I did that. The system then asked me an additional series of questions about the loan balances at the end, and on Jane 1, 2026. I believe it was trying to sequence them. I'm not sure I answer those correctly. How do I get back to that cycle of q&a to double check?

[Mike9241]

Interest on the original and any subsequent refinancings of HELOC is only deductible if it was used to make substantial improvements to the residence. The property must secure it. If you refinance for more than the balance at that time, and interest on the previous HELOC was deductible, only interest on the portion refinanced is deductible unless the excess was used to substantially improve the property. In addition, there is a cap on how much debt can count as qualifying residential interest 

so i think because of the refinancing rules, that's the question that must be answered. It's up to you to determine if it was used to substantially improve the property and the secured by property issue. if either or both are not true none of the interes is deductible and qualified residence intertest 

[martin3]

Thanks.  How and where can I see the systems calculations for the allowed amount?

I ask because, all of the HELOC proceeds were used for a home renovation. The refinancing was that I needed to increase the HELOC to pay for additional work. My concern is that I dont seem to be getting the credit for enough of the interest that I paid. I know there are caps (750,000?) but my total actual borrowings are 850k. (Whereas, the sum of the first mortgage and the two HELOCs (one replaced the other), is over $1M. )  The total interest is $39,000.  Doesn't that mean I have 34,400 in deductible interest? (ie 750/850 x 39,000?)   Given that  I have other deductions, it seems I should itemize. And yet, it's telling me to take the standard deduction whereas this should be higher. The only thing that I can figure is that somehow the interest isnt being calculated correctly...