Reply #9: Theory vs. practical

[question everything]

Yes, in theory, the interest is deductible when the loan is used for home improvement. In reality, this is the last place where people can deduct the interest, so people have been using the money to take trips, buy cars, etc.

Some real estate professionals claim that if your house is paid free and clear you are not financially savvy...

So yes, he can deduct the interest. Every one does it.

Now, there are some limits, like if it is more than $100K, I think.

http://www.irs.gov/taxtopics/tc505.html

Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home, but only if these mortgages totaled $100,000 or less throughout 2005, and all mortgages on the home totaled no more than its fair market value. The limit is $50,000 if you are married filing separately.