Deducting Your Home Equity Loan Interest Payments

You may deduct home equity loan interest up to a given limit each year. This limit is separate from the limit applied to deductions for mortgage debt. To deduct the expenses, first know your limits and then ensure your tax schedule is correctly filled out each year.

Deduction Limits

You may deduct interest on up to $100,000 of home equity debt each year. Note: this does not mean you can deduct $100,000 in interest. It simply means interest paid on the first $100,000 of your loans will be deductible. This is determined based on the Alternative Minimum Tax schedule which is filed on Form 6251. Use this form to ensure you are legally deducting. 

File for Deduction

The interest paid on your mortgage and home equity loans is reported on Form 1098 and then entered into your Schedule A. This is fairly straightforward, but some homeowners will want to consult a tax professional. You should consult a tax professional if you have bought or sold property, as these deductions are more complicated. Ensure you are monitoring your tax filing after it is submitted. You can now do this online. You will be alerted of any potential issue or rejection so you can make adjustments and refile.