The interest you pay on your Home Equity Loan may be tax deductible. If you are legally responsible for the mortgage and the loan is secured by your home this interest can be an itemized deduction for you.
There are three requirements to claim the mortgage interest deduction. The first requirement is that you (the person claiming the deduction) are legally responsible for the mortgage and the payments. The home equity loan you have must be secured by your home. This home must be your primary home or a second property you own. You are not allowed to rent this home out or use it for your business. Lastly, you must itemize this interest as a deduction on your IRS form 1040.
For the most part you will be able to deduct the full amount of the interest you paid on the loan. There are limits however; if your home equity loan was used to renovate your home then you can deduct up to one million dollars in interest. If you used the money for any other purpose, your interest deduction is limited to one hundred thousand dollars per year.
There are exceptions to IRS rules for military personnel and members of the clergy. If you refinanced your home last year and were charged a penalty for early repayment the penalty you paid is also tax deductible.