Combining existing home equity line with interest only mortgage...interest still tax deductible?

Question

Or does the home equity line invalidate all of the interest being deductible?

Answer 1

The following is copied from an IRS FAQ. I believe it is sufficiently close to you question to serve as an answer.

Is interest on a home equity line of credit deductible as a second mortgage?

You may deduct home equity debt interest, as an itemized deduction, if you are legally liable to pay the interest, pay the interest in the tax year, secure the debt with your home, and do not exceed certain limitations. For more information, refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 505, Interest Expense.

Answer 2

I am assuming that you are talking about refinancing and combining the loans in a 30 year fixed rate mortgage. If so the interest would still be deductible as home mortgage interest. If you had used the home equity money to improve the residence then you could combine and still get another home equity line. If you used the funds for another purpose then you could not get another home equity line.
After combining the loans you will still have to allocate the interest between your regular mortgage interest and what would have been home equity line interest. You would need to do this because the interest paid on the home equity line although deductible for income tax purposes is not deductible for alternative minimum tax purposes.
You may not want to do this because if you don't have they ability to get a home equity line you would have to finance auto's and other personal items and the interest on such loans is not deductible at all.

Answer 3

mostly, sure. There are some abode fairness loans that fall outdoors the tax deduction regulations, yet those are few. even as getting the fairness loan, examine with the loan officer or someone on the loaning business corporation to substantiate the interest is deductible.