Home Equity Loan Tax Deductions Many homeowners take out home equity loans to consolidate debts, make improvements to a home, or purchase a second home. Did you know that the interest on most home equity loans is tax deductible? There are limitations in deducting the interest based on what the loan is being used for. The deduction only applies to interest from the loan for a first or second home. You are not able to choose which home is your primary residence. Your primary residence will be the home in which you resided for the majority of the year. You have the option of deciding which second home will qualify for the deduction. Each tax year, you may select a different second home based on which gives you the best tax advantage. If you are consolidating your debts, you can deduct the interest on the first $100,000. The limits are higher (up to the value of the home or more) if you took the loan out to buy a second home or make improvements to your home. If the loan was for home improvements, the interest deduction cannot exceed one million dollars. This includes the mortgages for both the first and second home combined. Deductible interest is entered on your Schedule A and is available to taxpayers who are able to itemize. For more information about this deduction, see IRS Publication 936, Home Mortgage Interest Deduction, or ask your tax preparer. Use our office locator to locate your nearest Liberty Tax office.