What is required for home-equity loan interest to be deductible?

The deductibility of home-equity loan interest hinges on the purpose for which the loan proceeds are used. When the loan is utilized specifically to buy, build, or significantly improve the taxpayer’s main home or a second home, the interest paid on that loan is considered deductible. This means that homeowners can reduce their taxable income by the amount of interest they pay on a home-equity loan that meets these specific criteria.

Using the proceeds for other types of personal expenses or unrelated purposes would not qualify for this deduction. Additionally, there are no stipulations regarding a minimum loan amount for deductibility, or that the loan must be from a particular type of lender, such as a bank, making these factors irrelevant to the requirement for interest deductibility.