Are you wondering whether the interest on your home equity loan or HELOC is tax-deductible? The answer depends on how you use the money and whether or not you itemize your taxes. Since the 2017 tax reform, the IRS has set clear limits on what qualifies.
In this article, we examine when mortgage interest on a home equity loan or HELOC is tax-deductible.
Key Takeaways:
- HELOCs are tax-deductible only if you use the money to buy a home or make substantial home improvements on the property securing the loan.
- You must itemize deductions to claim any mortgage interest write-off.
- For many homeowners, the standard deduction is higher than their total itemized deductions, so claiming home equity interest often doesn’t provide extra tax savings.
How the 2017 Tax Reform Changed Home Equity Deductions
Before 2018, interest on up to $100,000 of home equity debt was deductible no matter how you used the money. You could take out a loan against your home equity to pay for college, pay off debt, go on vacation, buy a car, take care of an emergency, or really anything else, and you could still deduct the interest. However, after the Tax Cuts and Jobs Act (TCJA), that is no longer the case.
Interest on home equity loans is now only deductible if the loan is used to “buy, build, or substantially improve” the home that secures the loan. If you use the loan for personal expenses, the interest cannot be deducted.
Deduction Limits Under TCJA
Even when your home equity loan interest is used for qualified purposes, it’s subject to overall mortgage debt limits. The TCJA lowered the cap on loan principal eligible for interest deductions:
| Filing Status | Current Limit (2018–2025) | Pre-2018 Limit |
| Married Filing Jointly | $750,000 | $1,000,000 |
| Single or Married Filing Separately | $375,000 | $500,000 |
If you took out your mortgage or home equity loan before the end of 2017, you may still use the previous limits, under which up to $1,000,000 of debt (or $500,000 if single or married filing separately) can qualify for interest deductions.
But in all cases, you cannot deduct interest on mortgage debt beyond the home’s purchase price (plus improvement costs).
Do You Need to Itemize to Deduct Home Equity Loan Interest?
The mortgage interest deduction (including for home equity loan interest) is only available if you itemize deductions on Schedule A of your tax return. You cannot take the standard deduction and also deduct home mortgage or HELOC interest.
The IRS also announced that under the Big Beautiful Bill for the 2026 tax season (to be filed in 2027), the standard deduction will increase.
Here’s a look at the standard deduction rates for 2024, 2025, and 2026:
| Filing Status | 2024 | 2025 | 2026 |
| Single | $14,600 | $15,750 | $16,100 |
| Married Filing Separately | $14,600 | $15,750 | $16,100 |
| Head of Household | $21,900 | $23,625 | $24,150 |
| Married Filing Jointly | $29,200 | $31,500 | $32,200 |
| Qualifying Surviving Spouse | $29,200 | $31,500 | $32,200 |
Itemizing vs. Standard Deductions
If your total deductible expenses, including your mortgage interest, property taxes, charitable contributions, etc., do not exceed these amounts, you’ll likely claim the standard deduction and get no additional tax benefit from your home equity loan interest.
After TCJA, the number of people who itemized their taxes dropped from 30% to 10%. From this number, we can see that homeowners with regular or small mortgages and loans won’t have enough deductions to justify itemizing, making their home equity interest non-deductible in practice.
When Do These Tax Rules Expire?
The current restrictions on home equity interest deductions (and the lower $750k debt limit) were enacted as part of the 2017 tax reform, but they are not permanent. They are set to expire after 2025. Beginning in 2026, the tax rules are scheduled to revert to the pre-TCJA law unless new legislation extends them.
HELOC Interest Rules
A home equity line of credit (HELOC) is a type of home equity loan, and the same tax rules apply. It doesn’t matter whether you receive a lump-sum home equity loan or draw funds as needed from a HELOC: interest is deductible only if the money is used for a qualified purpose (buying, building, or improving).
Borrowers often use HELOCs as emergency funds or to consolidate debt, but using a HELOC for non-home expenses means you cannot deduct the interest, assuming you itemize on your taxes. The IRS explicitly states that interest on home equity debt used to pay personal living expenses is not deductible.
Can You Deduct HELOC Interest on a Second Home?
Interest on a HELOC or home equity loan for a second home can be deductible if that home secures the loan and the funds help buy or improve it.
What you cannot do is secure a loan on your primary home and use the money to improve a different property, while expecting a deduction.
However, you can’t deduct interest if you borrow against your primary home to improve another property. Also, remember that both your primary and second home loans count toward the same $750,000 cap on deductible mortgage debt.
If you already have a large mortgage on your primary home, it may limit the deductible interest on a second-home loan.
What Counts as a “Substantial Home Improvement”?
An improvement is considered “substantial” if it either:
- Adds to the value of your home
- Extends its useful life
- Adapts your home to new uses
Qualifying home improvements include things like major renovations.
For example, remodeling a kitchen or finishing a basement would qualify, since these projects add significant value and utility to the home. It would also include replacing key systems/structures that extend the life of the home, such as installing a new roof, upgrading your HVAC system, replacing all your windows with energy-efficient ones, or installing a new septic system. Major improvements to the property, like adding a swimming pool or installing solar panels, also count. All of these items would be tax-deductible when using a home equity loan to increase the value of your home.
Routine maintenance, such as repainting a room, fixing a gutter, patching a roof leak, or repairing a broken appliance, does not count. If you use the money for these things, the interest is not deductible.
Are Other Loan Types Tax Deductible?
Personal Loans
Personal loan interest is not tax-deductible, even if you used the money to pay for home improvements. Because they’re unsecured debt (not tied to your home), they don’t meet the IRS definition of a qualifying mortgage.
Cash-Out Refinancing
Many homeowners tap equity through cash-out refinancing, which replaces an existing mortgage with a larger one and provides the difference in cash. The tax treatment of interest on a cash-out refinance follows the same rules as a home equity loan.
How to Document Home Equity Loan Expenses for the IRS
Taking an interest deduction for a home equity loan or HELOC is one area where documentation is essential. The IRS expects you to prove that your loan was used for qualified purposes in an audit.
That’s why you should save all receipts and invoices from your home improvement projects. Additionally, make sure to keep copies of loan documents and Form 1098s (your lender will issue these mortgage interest statements each year, showing the interest you paid on the mortgage or loan).
Lastly, hold records for at least 7 years. The IRS typically can audit returns up to 3 years back, or up to 6 years if a substantial understatement is found. Given that home improvements and loans can involve large amounts, it’s advisable to keep all relevant documents on hand for 7 years.
When To Get Expert Guidance
Home equity loan deductions can get complex if you have multiple loans or uses of funds. It’s always a good idea to reach out to a qualified tax professional about your specific situation to understand tax implications and to get the most out of your money.
Additionally, make use of official IRS resources. The IRS provides detailed guidance in IRS Publication 936: Home Mortgage Interest Deduction, which is updated annually. Pub 936 includes FAQs, worksheets, examples to determine your deductible interest, definitions of terms like substantial improvement, explanations of scenarios such as refinancing and grandfathered loans, links to many resources, and several other useful items to help you get started.
Should You Expect a Deduction?
Whether you can deduct interest on your home equity loan or HELOC comes down to three things: how you use the loan, whether you itemize your taxes, and the total amount of your mortgage debt.
If you use the loan for qualifying home improvements, keep your total mortgage debt within allowed limits, and your overall deductions are high enough to itemize, you will qualify and benefit from the interest deduction. But if you use the funds for personal needs or you take the standard deduction, then the interest on that loan won’t provide any tax savings.
For most people, the reality is that the large standard deduction means you probably won’t deduct home equity interest even if it’s technically eligible.
But that doesn’t mean you should be disappointed! Instead, prepare for it. Simply think of the interest as an out-of-pocket expense. The tax deduction shouldn’t be the only reason to borrow money; the project itself should make financial sense, and any tax benefit is just a bonus.
If you’re planning a renovation or need funding, now’s the time to explore your options.
Get started here to view your home equity loan eligibility.
