For example, if you bought a house for $100,000 five years ago, financed $80,000 of it and have since made $10,000 worth of improvements and paid down, say, $1,000 of principal, you could deduct the interest payments on a home- equity loan of up to $31,000. The tax bill would then let you use that line of credit, say, to buy a car or consolidate debts on which interest payments will lose their tax deductibility.