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Interest is not deductible to the extent the home equity loan exceeds $ 100,000 ( $50,000 mfs). If the loan was made for investment or business purposes, you may still be able to deduct the interest on the excess.

The home equity loan may be secured by your first or second home. You can't deduct the interest if you are planning to buy tax exempt bonds with your loan.

Also, you can only deduct interest on the loan to the extent that the loan doesn't exceed the fair market value of your home minus the current mortgage. For example if you have a home equity loan for $100,000, a home with a mortgage of $ 160,000 and a fair market value of $ 200,000, you can only deduct interest on $ 40,000 or 40 % of the home equity loan.

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