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When one talks about a home equity loan used to "buy, build, or improve your home," how does that apply to a home equity loan taken on one's main home and used to buy a second home? Does "your home" mean the home on which you took the home equity loan, or can it mean "your" second home? Thanks from an avid follower of this board.
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What is the use of the second home? As a vacation home? A second residence? Rental? Something else?

--Peter
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When one talks about a home equity loan used to "buy, build, or improve your home," how does that apply to a home equity loan taken on one's main home and used to buy a second home? Does "your home" mean the home on which you took the home equity loan, or can it mean "your" second home?

With the exception of the treatment of points (and perhaps PMI), the mortgage interest rules are the same for primary and second homes. However, in this scenario you could wind up with a problem of too much debt tied to the primary home relative to its cost and improvements.

See Pub 936.

Phil
Rule Your Retirement Home Fool
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Not sure what the difference is between a vacation home and a second residence....it would be used on weekends and for longer periods during vacation times.
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Not sure what the difference is between a vacation home and a second residence....it would be used on weekends and for longer periods during vacation times.

Any debt secured by your principal residence but used to purchase this second residence would be home equity debt rather than home acquisition debt.

The upshot is that you can deduct interest only on the first $100k of home equity debt, and that interest is not allowed for AMT purposes.

--Peter
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Thank you Phil and Peter!

Christine
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