While the 1986 tax reform called for consumer interest deductibility to be phased out by 1991, interest deductions on equity indebtedness now are limited only by the $100,000 cap. This means that interest paid on home equity lines of credit - loans secure d by your principal or second home - is still deductible.
Where the traditional second mortgage gives the homeowner money in one lump sum the home equity line of credit allows homeowners to use the equity in their home like a giant credit card. The lender allows the homeowner to borrow at will against the equity in the home, and charges interest only on the portion of the equity borrowed against. Therefore, your interest deductions for a home equity line of credit depend on whether you borrow against the equity during that year.
