| In general, a taxpayer may not deduct interest on more than $100,000 of home equity debt for his main home and secondary residence. Home equity debt means any loan whose purpose is not to acquire, to construct, or substantially to improve a qualified home. The limit is reduced to $50,000 if you are married filing separately.
Your deduction for home equity interest may be reduced even below the $100,000 limit if your indebtedness exceeds the fair market value of your home. See the "home equity debt" section of IRS Publication 936.
Therefore, in your case, You would be able to deduct interest only up to the $100,000 limit on home equity debt portion of the loan. Basically, the total interest on your home equity that would be deductible is calculated as follows:
100,000
--------- x Home Equity Interest = Deductible Home Equity Interest.
170,000 | 
