Home equity loan interest

[thomtax]

I thought that I had things figured out, but now am not sure.

I just completed a 1040 update seminar. An example was given of an individual that got a $40,000 home equity loan. The proceeds were used to purchase a pleasure boat and that the interest is deductible as home mortgage interest.

I thought that "interest tracing" came into play here and that the proceeds of the loan needed to be used for the home to be deductible. Am I confusing this with a different type of loan?

Thanks for your replies.

LT

[Burke]

It qualifies as home equity debt. Up to $100,000 ($50,000 MFS) and interest is deductible as home mortgage interest.

[solomon]

I thought that "interest tracing" came into play here and that the proceeds of the loan needed to be used for the home to be deductible. Am I confusing this with a different type of loan?

Thanks for your replies.

LT

Tracing rules do not apply to qualified mortgage interest. Because of the use of funds in your example, the interest would be an AMT item.

If an election were made to treat the loan as not secured by the home, then tracing would be required.