HELOCs and Acquisition Debt
Over and over individuals are assuming a home equity line of credit (HELOC) is by definition equity debt. That is simply NOT true! A HELOC can be acquisition debt or equity debt. IRC Sec 163(h)(3) does not even refer to the term HELOC.
Section 163(h)(3)(B) provides this rule...
(B) Acquisition indebtedness
(i) In general, the term “acquisition indebtedness” means any indebtedness which -
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is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer, and
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is secured by such residence. Such term also includes any indebtedness secured by such residence resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence (or this sentence); but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.