CA Heloc

[hcklau]

Taxpayer has a mortgage and a HELOC. Mortgage debt is $325,000 and HELOC is $288,000.  Total debt is less than the $750,000 limit for Fed, so all mortgage interest is deductible.  CA, has a $100,000 limit debt on HELOC.  I can not figure out how to input or make the adjustment on the CA mortgage interest deduction.  Any suggestions?

[rbynaker]

What were the HELOC funds used for?  If not to "buy, build, or improve" the home then that interest is not deductible at the federal level post TCJA.  But then you do get to deduct interest on $100K for CA.  If the funds were used to improve the home then it's probably fully deductible for both fed and CA.

[hcklau]

The funds were used for home improvement.  Why is the HELOC fully deductible for CA and not subject to the $100K debt?

[rbynaker · Accepted solution]

Throw out the "HELOC" bank term, it's misleading.  This is acquisition debt used to buy, build or improve the residence.  If they opened a HELOC at the bank and used it to pay off credit cards, car loans, buy a jet ski, etc. it would be non-deductible for federal purposes and subject to the $100K limit for CA purposes.  But sounds like this isn't home equity debt, it's home acquisition debt.