FNK wrote:I was curious about the same exact question, and it appears that IRS is being nice to us here. Pub 936, Mixed-use mortgages says that principal payments kill off home equity debt ($100K limit) first and home acquisition debt ($1M limit) last.
Caveat emptor, consult TurboTax your tax advisor, yada yada.
I read through pub 936 a bit. I agree with your statement that you kill the home equity debt first. So in my example, I believe option (2) above is my answer since I paid back the $20k that I took out for the cash-back refi, therefore $100k is the max I can borrow from the HELOC and deduct the interest. I also believe the answer to my second question is one can deduct interest on loans up to $100k for any year. In other words, every year you see how much home equity debt you have. If I used $100k this year, but then paid back $10k, I can then take another $10k out and deduct the interest.