Part 1 Itemized Deductions and the QBI Deduction question: home equity interest deductible

Part 1Itemized Deductions and the QBI Deduction

In 2025 Amy took a $40,000 home equity loan on her main home and used it to pay off credit cards. Her first mortgage is $200,000. Is the home equity interest deductible?

A No, because home equity loans are never deductible
B No, as the proceeds were not used on the home
C Yes, up to $100,000 of home equity debt, as under the old rules
D Yes, since total debt is under $750,000

Show the answer and explanation

Answer: B. No, as the proceeds were not used on the home

Interest on a home equity loan is deductible only if the proceeds are used to buy, build or substantially improve the home securing the loan. Using the money to pay personal debts makes it personal interest, which is not deductible, regardless of total debt. Home equity loans used for improvements can be acquisition debt. Source: IRC 163(h)(3)(B), 163(h)(3)(F)(i)(I); Pub. 936 (2025), Home equity loan interest. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Allowing home equity interest because the debt is under the $750,000 limit.

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.