HELOC Interest Deductibility Question

[grumpy]

We will settle on our new home soon and I intend to pay cash. We will not settle on the sale of our existing home until a month later. I have set up a home equity line of credit for $265K to use as a bridge loan. I read recently that interest on a HELOC up to $100k is tax deductible. Does that mean I can deduct the interest on the first $100k but not the interest on the other $165k? How will the IRS know how big a HELOC I had? Won't they just get a 1099-INT showing how much interest I paid? It the total interest I paid (for one month) is less than 1 years interest on a $100k loan can I deduct it all?

Grumpy

[brewer12345]

My understanding is that you can deduct up to $100k of interest. That means you could have whatever size HELOC out so long as the total interest you pay doesn't exceed $100k.

Of course, this may not apply if you get slapped with AMT.

[wabmester]

My understanding is that you can deduct up to $100k of interest.

I don't think that's right. I believe the limits are in terms of loan amounts.

-- interest on the first $1M of your home loan is deductible

-- interest on the first $100K of a HELOC is deductible

As far as the IRS catching you if you go higher -- there are lots of things the IRS won't catch till audit time. You probably don't want to go there.