- HELOC and home equity loan interest is tax-deductible only if you use the money to buy, build, or substantially improve the home securing the loan.
- You must itemize deductions to claim any mortgage interest write-off.
- For many homeowners, the standard deduction exceeds their total itemized deductions, so home equity interest often doesn’t provide additional tax savings in practice.
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 you itemize your taxes. Since the 2017 Tax Cuts and Jobs Act (TCJA), 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.
How the 2017 Tax Reform Changed Home Equity Deductions
Before 2018, interest on up to $100,000 of home equity debt was deductible regardless of how you used the money. You could borrow against your home equity to pay for college, consolidate debt, take a vacation, buy a car, or cover an emergency—and still deduct the interest. 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 funds 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 | TCJA 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 ($500,000 if single or married filing separately) can qualify for interest deductions.
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 has announced that under the Big Beautiful Bill for the 2026 tax year (to be filed in 2027), the standard deduction will increase.
Here’s a look at the standard deduction amounts 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 mortgage interest, property taxes, charitable contributions, and other qualifying items—don’t exceed the standard deduction for your filing status, you’ll likely claim the standard deduction and receive no additional tax benefit from your home equity loan interest.
After the TCJA, the share of taxpayers who itemized dropped from roughly 30% to around 10%. Homeowners with modest mortgages or smaller loans typically won’t have enough deductions to make itemizing worthwhile—meaning their home equity interest is effectively non-deductible in practice.
When Do These Tax Rules Expire?
The TCJA restrictions on home equity interest deductions—including the lower $750,000 debt limit—were enacted as part of the 2017 tax reform and were originally set to expire after 2025. Tax law in this area is subject to change, so it’s important to consult a tax professional or check the latest IRS guidance to understand the current rules that apply to your situation.
HELOC Interest Rules
A HELOC is a type of home equity loan, and the same tax rules apply. It doesn’t matter whether you receive a lump sum or draw funds as needed from a revolving line of credit: interest is deductible only if the money is used for a qualified purpose—buying, building, or improving the home that secures the loan.
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, even if you itemize. The IRS explicitly states that interest on home equity debt used for 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 are used to buy or improve it. What you cannot do is borrow against one property and use the proceeds to improve a different one while expecting a deduction.
Also keep in mind that both your primary and second home loans count toward the same $750,000 cap on deductible mortgage debt. If you already carry a large mortgage on your primary home, it may limit the amount of deductible interest available 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
Examples of qualifying improvements include major renovations like remodeling a kitchen or finishing a basement, replacing key systems that extend the home’s life (new roof, HVAC upgrade, energy-efficient windows, new septic system), and significant property additions like a swimming pool or solar panels. All of these would be tax-deductible when using a home equity loan to increase the value of your home.
Routine maintenance does not qualify—repainting a room, fixing a gutter, patching a roof leak, or repairing a broken appliance are not deductible uses of home equity funds.
Are Other Loan Types Tax Deductible?
Personal Loans
Personal loan interest is not tax-deductible, even if the funds were used for home improvements. Because personal loans are 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 requires thorough documentation. The IRS expects you to be able to prove that your loan was used for qualified purposes in the event of an audit. Here’s what to keep on file:
- All receipts and invoices from your home improvement projects
- Copies of loan documents and Form 1098s (your lender will issue these mortgage interest statements annually, showing the interest you paid)
- Records retained for at least 7 years — the IRS can typically audit returns up to 3 years back, or up to 6 years if a substantial understatement is found
When To Get Expert Guidance
Home equity loan deductions can get complex if you have multiple loans or mixed uses of funds. It’s always a good idea to consult a qualified tax professional to understand the implications for your specific situation.
The IRS also provides detailed guidance in IRS Publication 936: Home Mortgage Interest Deduction, which is updated annually. It includes FAQs, worksheets, worked examples, definitions of key terms like “substantial improvement,” and explanations of common scenarios such as refinancing and grandfathered loans.
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 the allowed limits, and your overall deductions are high enough to make itemizing worthwhile, you’ll qualify for the interest deduction. But if you use the funds for personal expenses or claim the standard deduction, the interest won’t generate any tax savings.
For most homeowners, the reality is that today’s elevated standard deduction means home equity interest likely won’t be deductible in practice—even when it technically qualifies.
That doesn’t mean a HELOC or home equity loan isn’t worth pursuing. Think of the interest as an out-of-pocket cost and evaluate the project on its own merits. Any tax benefit you do receive is a bonus—not the reason to borrow.
Ready to Tap Your Home Equity?
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