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I've read IRS pub. 936 but I would like to be sure if my computation is acurate.

In early 1999 we took out a home equity loan ( appx 125%) LTV. I think that I understand how to compute this but I am not sure.

Here is a rough breakdown.

Amount owed on First
Mortgage 80,600

Fair Market Value 102,000

Amt of Home Equity
Loan 31,260

Tell me if this right: I think that means that I can deduct the interest on the Home Eq Loan up to the amount of the FMV (102,000-80,600) which is 21,400. The rest of the home equity loan is personal interest. I divided 21400 into the 31260 and got 68% and some change. Does that mean that 68% of my interest pd on my home equity loan is deductible? If I paid $4500 in interest on the 2nd or Home eq. would $3080 be deductable? If so, what line does that go on (Schedule A?)
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Does that mean that 68% of my interest pd on my home equity loan is deductible? If I paid $4500 in interest on the 2nd or Home eq. would $3080 be deductable? If so, what line does that go on (Schedule A?)

68.458% is correct. $3081 would be deductible on line 10 along with your 1st mortgage interest.
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Your calculation above works assuming that you never reduce the amount of home equity debt. A better way to look at it is as follows:

If the balance of the home equity debt is less than $21,400, then you can deduct the entire amount of interest; and
If the balance of the home equity debt is greater than $21,400, then you can deduct interest equal to $21,400 times the interest rate on your home equity debt.

If the inerest rate is floating, you may have to prepare a more detailed calculation.

You should report the home equity debt on Sch. A, Line 10 or 11. If you receive a Form 1098 relating to the interest, report the entire amount on Line 10. On line 11, report an adjustment (increase or decrease based on amount reported on Line 10) to arrive at the appropriate deductible home equity interest. This way, the IRS can match your 1098 reported amounts.

See ya!
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Thanks Roo.

Can I ask something else? The $31,260 I was giving was the total amount of the Home equity Loan. I'll be using the current balance, right? It's not too much different.

Thanks!
dave
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The $31,260 I was giving was the total amount of the Home equity Loan. I'll be using the current balance, right?

The percentage is set when you did the loan regardless of the current balance.
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