The loan must be secured by the second home. For tax years 2018 through 2025, you can only deduct the interest from the amount of your loan that was used to buy, build, or improve the home that it’s secured by.
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.
Examples of common ways you might have used this money not on your home include:
- Making a downpayment on a different home
- Funding improvements on a different home
- Making a payment on a different loan or debt
- Having miscellaneous large purchases
Under these provisions, if you want to deduct interest on a second home, you must have a mortgage on it. If you borrowed against the equity on your first home to finance the purchase of your second home, you can't deduct the interest. :(
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