The deduction is the same as would be for any mortgage; that is, you get a deduction for actual interest paid.
By "home equity loan", I assume you actually mean a home equity line of credit (HELOC). That is, you have a line of credit, of which you're usually required to take a certain amount at the time the loan is closed, but you can borrow up to your line of credit for a certain term and you can also repay in full at any time after a specified date. So the balance can go up and down.
The thing to remember about mortgage interest in general is that your tax savings depends on your tax bracket. So if you're in the 25 percent marginal tax rate bracket, your tax is reduced by 25 cents for every dollar you pay in interest. In other words, don't draw any more from your HELOC than you actually need. If you were going to purchase something with a credit card at, say 12 percent interest, then it makes sense to use your HELOC that charges 3 percent interest instead, even without the tax deduction. On the other hand, if you can get a car loan for 2.5 percent interest it wouldn't make sense to use a 3 percent HELOC to buy a car unless you're in a very high tax bracket.
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Today's Featured Article - Restoration Story: Fordson Major - by Anthony West. George bought his Fordson Major from a an implement sale about 18 years ago for �200.00 (UK). There is no known history regarding its origins or what service it had done, but the following work was undertaken alone to bring it up to show standard. From the engine number, it was found that this Major was produced late 1946. It was almost complete but had various parts that would definitely need replacing.
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