15.5 Home Improvement Loans

Loans used for substantial home improvements are treated as home acquisition debt subject to the $1 million debt ceiling (15.2). Include only the cost of home improvements that must be added to the basis of the property because they add to the value of the home or prolong useful life. Repair costs are not considered.

If substantial improvements to a home are begun but not completed before a loan is incurred, the loan will be treated as acquisition debt (assuming the debt is secured by the home) to the extent of improvement expenses made within 24 months before the loan. If the loan is incurred within 90 days after an improvement is completed, the loan is treated as acquisition debt (assuming the debt is secured by the home) to the extent of improvement expenses made within the period starting 24 months before completion of the improvement and ending on the date of the loan.