Interest is deductible on acquisition debt up to $1 million for loans made before 12/16/2017 and up to $750,000 for loans made after that date.
Interest on equity debt is no longer deductible -- it was eliminated in tax reform. You can only deduct interest on acquisition debt. Acquisition debt is debt used to buy, build or remodel the home. Anything else is equity debt. The exact form of the loan is irrelevant, what counts is acquisition vs equity debt.
For example:
1. You buy a home with 5% down, an 80% conventional loan and a 15% home equity loan. All the debt is acquisition debt, even though part of it is an HELOC.
2. You buy a home for $100,000 with an $80,000 mortgage. Some years later, the mortgage balance is down to $60,000. You take out a home equity loan for $60,000 and use it for a boat. Your acquisition debt is $60,000. You can deduct interest on the mortgage but not the HELOC.
3. You buy a home for $100,000 with an $80,000 mortgage. Some years later, the mortgage balance is down to $60,000. You take out a home equity loan for $60,000 to remodel the kitchen and build an addition. Your acquisition debt is $120,000. You can deduct interest on both the mortgage and the HELOC.
4. You buy a home for $100,000 with an $80,000 mortgage. Some years later, the mortgage balance is down to $60,000. You refinance to have only one new mortgage at $100,000. You pay off the old mortgage, use $10,000 to remodel the kitchen, and the rest for other bills. Your acquisition debt is $70,000 (old $60,000 balance plus remodel costs), so you can only deduct 7/10ths of the interest on the mortgage, even though you only have one mortgage.
