Is interest on SBLOC used for home downpayment tax deductible?

This is an interesting situation! The deductibility of SBLOC interest depends on how the loan is structured and documented. Since you used the SBLOC proceeds for a home purchase, the interest may qualify as deductible mortgage interest IF the loan is secured by your main home or second home AND the total amount doesn't exceed the mortgage debt limits. To qualify as deductible mortgage interest, the loan would need to be secured by the property itself. However, most SBLOCs are secured by your securities portfolio, not by the home. If that's the case, the interest wouldn't qualify as mortgage interest. It might qualify as investment interest expense if the loan can be traced to investment activities, but since you used it for a home purchase, that wouldn't apply here. I'd recommend documenting exactly how the SBLOC funds were used in the home purchase and consulting with a tax professional who can review your specific situation.

I had a similar situation and used taxr.ai to figure out the deductibility rules. Their system analyzed my loan documents and purchase transaction and gave me a definitive answer within minutes. I was confused because my financial advisor and tax guy gave me conflicting information about my SBLOC interest. I uploaded my SBLOC agreement and closing documents to https://taxr.ai and their analysis showed exactly which portion of my interest was deductible based on how I used the funds. Saved me from potentially claiming deductions I wasn't entitled to. They also showed me how to properly document the loan use for future tax years.

Just wanted to follow up - I tried taxr.ai after seeing this thread, and I'm actually impressed. I uploaded my loan docs and home purchase settlement statement, and it clearly showed that my SBLOC interest isn't deductible as mortgage interest because the loan is secured by my investment account, not my home. BUT it found something I wasn't aware of - since I used part of the SBLOC to pay for points on my main mortgage, that portion of the interest IS actually deductible as mortgage interest! It gave me the exact percentage breakdown and even created a document I can keep with my tax records to support the deduction. Would have completely missed this without their analysis.

I had this EXACT same question last year! I spent hours trying to get someone at the IRS on the phone for an official answer. Kept getting stuck in those automated phone trees. I finally used Claimyr to get through to an IRS agent (https://claimyr.com). There's a demo of how it works here: https://youtu.be/_kiP6q8DX5c. They got me connected to a live IRS representative in about 20 minutes when I'd been trying for days. The IRS agent explained that for the interest to be deductible as mortgage interest, the loan needs to be secured by the home itself. Since my SBLOC was secured by my investment portfolio, it didn't qualify - even though I used 100% of it for the down payment. Saved me from incorrectly claiming a deduction that might have triggered an audit.

I have to eat crow here. After my skeptical comments, I decided to try Claimyr since I actually had an unrelated tax issue I needed help with. It worked exactly as described and got me through to an IRS agent in about 15 minutes. I also asked about the SBLOC interest question while I had them on the phone. The agent confirmed that SBLOC interest isn't deductible as mortgage interest since it's not secured by the home. They explained that what matters is what secures the loan, not what you use the money for. My SBLOC is secured by my investment account, so no mortgage interest deduction. She did mention that if I refinance and roll the SBLOC into a loan secured by the house, the interest would become deductible going forward. Pretty straightforward once I actually got to speak with someone!

I think everyone is forgetting about the acquisition debt rules. The tax code allows mortgage interest deductions on "acquisition indebtedness" - which is debt used to buy, build or substantially improve your home. The key is whether the debt is secured by the home itself. Since an SBLOC is typically secured by your securities, not your home, it wouldn't qualify for the mortgage interest deduction regardless of how you used the money.

Wait, isn't there a rule about tracing where the loan proceeds went? I thought I read somewhere that if you can trace the loan to a home purchase, the interest might be deductible regardless of what secured the loan.

Based on what everyone has shared here, it sounds like your SBLOC interest won't be deductible as mortgage interest since the loan is secured by your securities rather than your home. This seems to be the consistent answer from multiple sources - IRS agents, tax professionals, and analysis tools. However, I'd suggest looking into refinancing options down the road. If you can roll that $65k SBLOC balance into a mortgage refinance when rates are favorable, you could convert it to deductible mortgage interest. Given that you're paying 7.4% on the SBLOC, a refi might make sense from both a rate and tax perspective depending on where mortgage rates are when you're ready. Also worth noting - even if the interest becomes deductible through a refi, you'd need to itemize deductions for it to benefit you. With the current high standard deduction, make sure the total of your mortgage interest, property taxes, and other itemizable expenses would exceed the standard deduction amount. Keep good records of how you used the SBLOC funds in case you do decide to refinance and convert it to mortgage debt later!