Mortgage Interest Deductability
You have a $1M bucket to play with on your first and second residence (investment properties are not deductible). That's $1M in loans - property values are not relevant to the discussion. Any debt you incur at the time of purchase of your 1st / 2nd properties up to $1M is deductible.
On cash out refinances, or HELOCs, it gets tricky. Cash out up to $100k or a HELOC up to $100k is deductible for any purpose EXCEPT if you use the money to purchase tax free municipal bonds. Above $100k, any portion that is used for home improvement is not subject to the 100k rule, but is, of course, still subject to the $1M rule.
Illustrative Example 1: You have $800k total debt on your 1st and 2nd home all of which was incurred at the time of purchase. You get a HELOC against the 1st (or 2nd) for 200k. You use $50k for home improvement. So, interest on the 1st $150k is tax deductible. The other $50k is deductible for the following purposes only:
1. If you put the $50k in investments, you can deduct the interest as an investment expense.
2. If you use the $50k to fund you business, you can deduct the interest as a business expense.
Note: The $50k cannot be deducted as mortgage interest in either case.