What is a HELOC?

A HELOC functions similar to a credit card in that you are given a line of credit against which you can borrow. Unlike a home equity loan, you do not receive a lump sum payment when you take out the loan; you can use as much or as little of the account as needed.

HELOC Interest

The amount of interest charged on an HELOC depends on the amount of the line of credit that you use. For example, if your limit is $50,000 but you only borrow $20,000, interest is only charged on the $20,000.

How Much Did You Pay?

At the end of the year, you should receive Form 1098 from your lender. Box 1 on the form lists the amount of interest that you paid.

Tax Deduction Limits

You can deduct the interest you pay on the first $50,000 of your home equity line of credit. This amount is doubled if your filing status is married filing jointly.

Considerations

If you use the money from your home equity line of credit for home improvements, you can deduct the interest on the first $500,000. If your tax status is married filing jointly, the limit doubles to the interest on the first $1 million.

Reporting

The home equity line of credit interest deduction is an itemized deduction. This means that you must itemize your deductions and forgo the standard deduction to claim the credit.

Source:

Bankrate: Tax benefits of a home equity line of credit

IRS: Schedule A

IRS: Form 1098