In theory that sounds right.  In practice there are all sorts of detailed "tracing" rules you have to follow.  I think it's 1.163-10T (but it might be 8T, I get those mixed up sometimes).  There are some safe harbors if everything was done quickly but I had a nightmare one a few years ago where HELOC money was just dumped into a regular checking account, mixed with paychecks, bought groceries, paid contractors, car payments, credit cards, etc. (and on the credit cards were Home Depot charges for materials used by the contractors to make the improvements so follow the bouncing ball).  I had to spreadsheet everything coming in and everything going out and see how much of the contractor money was (or could be deemed to have been) paid from HELOC money.