Is HELOC or Home Equity Loan Interest Tax Deductible?

Many homeowners have heard that HELOC or home equity loan interest is tax deductible. That is partly true. But it comes with conditions that require deeper understanding. Whether your interest qualifies depends on three things: 

• How you use the money
• The way you file your taxes
• The total mortgage debt you carry

Tax law on this topic has shifted more than once. The Tax Cuts and Jobs Act of 2017 changed the rules significantly. Then the One Big Beautiful Bill Act, a 2025 law, made those rules permanent.The rules below reflect current law.

Let's take a look at each condition so you can get an idea of whether your situation qualifies. It could also be worth consulting with a tax advisor for personal guidance.

When HELOC or home equity loan interest may be deductible

Deductibility does not depend on the type of loan you have. It depends on what you do with the money.

Under current rules, interest on a HELOC or home equity loan may be deductible when you use the funds to “buy, build, or substantially improve the taxpayer’s home that secures the loan.” Those are the IRS’s exact words. 

Interest on funds used for pretty much anything else does not qualify. 

The same rule applies to both products. For deductibility purposes, there is no distinction between a HELOC and a home equity loan. If you are still comparing the two, see our guide to home equity loans and lines of credit. What you do with the money is the only variable that matters for deductibility.

The One Big Beautiful Bill Act, a 2025 law, made these rules permanent. There is no scheduled expiration. If you have seen sources suggesting the rules lapsed at the end of 2025, those sources are out of date. 

What’s a qualifying home improvement?

The IRS definition of a substantial improvement is precise. An improvement is substantial if it: 

• Adds to the value of your home
• Prolongs your home’s useful life, or
• Adapts your home to new uses

For example, replacing a roof or adding a garage adds value. Upgrading your HVAC system or windows prolongs useful life. Adding a wheelchair ramp or converting a garage to a bedroom adapts the home to new uses.

Repairs are different. The rule is clear: repairs that maintain your home in good condition are not substantial improvements. Repainting walls does not qualify. Fixing a leaky faucet does not qualify. Replacing a garbage disposal does not qualify. These are maintenance, not improvements.

There is one nuance worth knowing. If painting is part of a larger, qualifying renovation, you can generally include the painting costs in the total cost of that improvement.

Tax law can be complicated. If you're not sure about whether your improvements qualify, consult a tax advisor for guidance for your situation.

When you use HELOC funds for more than one purpose

Careful tracking matters here. If part of your HELOC goes to a qualifying renovation and part to paying off credit cards, only the interest on the qualifying portion may be deductible. Clear records showing where each draw goes are essential. And it’s even more important if you use your credit card to fund a qualifying improvement and then pay it off with home equity borrowing. Check with a tax pro—you may be able to take the deduction, but you’ll need a perfect paper trail. 

For homeowners who also use part of their home for business, such as a dedicated home office, tax rules require the interest to be divided. The residential portion may be deductible on Schedule A as acquisition debt. The business portion may be deductible on Schedule C or Form 8829. A tax professional could help you calculate the right split.

The itemizing test: why many homeowners don't actually benefit

Here is the tricky part. Even when HELOC interest qualifies under the use-of-funds rule, two more conditions apply. The first eliminates the benefit for a large share of homeowners.

You need to itemize

To claim the deduction, you need to itemize on Schedule A of Form 1040. You can't take the standard deduction and also claim HELOC interest. 

Here is why this matters. The standard deduction is high:

• For 2025 taxes (filed in 2026): $15,750 for single filers, $31,500 for married filing jointly 
• For 2026 taxes (filed in 2027): $16,100 for single filers, $32,200 for married filing jointly 

Your total itemized deductions must exceed those numbers for the HELOC interest deduction to save you anything. If they don't, the deduction doesn't lower your tax bill, even if your HELOC use qualifies in every other way.

The debt limit

There is a cap on how much home loan debt can generate deductible interest. For loans taken out after December 15, 2017, the limit is $750,000 for single filers and married filing jointly, and $375,000 for married filing separately. 

This cap applies to your combined home acquisition debt: primary mortgage plus HELOC or home equity loans combined. 

Here is an example: Say you have a $680,000 mortgage and take out a $100,000 HELOC for a qualifying kitchen renovation. Your combined debt is $780,000. Only interest on the first $70,000 of your HELOC may be deductible, because that is where the combined total reaches $750,000.

The home must secure the loan

The HELOC or home equity loan must be secured by your primary home or a qualified second home. Rental and investment properties do not qualify for the Schedule A deduction. (You may be able to deduct the interest, but you’ll do it in another form and apply different rules. See the FAQ below for how rental property is treated differently.)

How to document and claim the deduction

If your situation checks all three boxes, you'll want documentation to help protect you if you are ever audited.

• Step 1: Confirm that your use of funds qualifies. The project must add value, prolong useful life, or adapt the home to new uses.
• Step 2: Keep records. Gather contractor invoices, receipts, and bank statements showing where each HELOC draw went. 
• Step 3: Get your Form 1098. Your lender is required to send your Mortgage Interest Statement by January 31 of the following year. This shows total interest paid and is the starting point for your deduction. 
• Step 4: Report interest on the correct form for your situation. For most homeowners deducting qualifying mortgage interest, that is Schedule A (Form 1040), line 8a. For rental property interest, it may be Schedule E. For a home office or other business use, it may be Schedule C or Form 8829. If you are unsure which applies, Step 5 covers that.
• Step 5: Talk to a tax professional. If there is any doubt about qualification, which form to use, mixed-use allocation, or whether itemizing makes sense for your situation, this is the step that pays for itself.

IRS recordkeeping rules require homeowners to keep records relating to property until the period of limitations expires for the year in which you dispose of the property. You will need them to calculate gain or loss and any depreciation when you eventually sell. 

Bills Action Plan

1. Check how you used the funds. If your HELOC or home equity loan was used to buy, build, or substantially improve the home securing the loan, you may qualify for a deduction. If the funds went to debt consolidation, a car, tuition, or other personal expenses, the interest generally does not qualify.
2. Run the itemizing math before assuming you benefit. Add up your potential itemized deductions: mortgage interest, property taxes, state and local taxes, charitable contributions. Compare that total to your standard deduction. For 2025 taxes filed in 2026: $15,750 for single filers, $31,500 for married filing jointly. For 2026 taxes filed in 2027: $16,100 for single filers, $32,200 for married filing jointly. If your total does not exceed those thresholds, the deduction does not reduce your tax bill, even if you technically qualify.
3. Gather your documentation and talk to a tax professional. Pull together contractor invoices, receipts, and your Form 1098. A tax professional could help you confirm eligibility, calculate any partial deduction on mixed-use draws, and make sure you claim it on the correct form. For a broader look at how these products work, visit our home equity loan and HELOC guide.

Key Terms

HELOC (home equity line of credit): A revolving line of credit secured by your home, drawn as needed during the draw period and repaid during the repayment period.

Home equity loan (HEL): A lump-sum loan secured by your home, repaid in fixed monthly installments.

Acquisition debt: Debt used to buy, build, or substantially improve a qualified home. This is the type of mortgage debt that may qualify for the home mortgage interest deduction.

Standard deduction: A flat amount that reduces taxable income, set annually by the IRS. For 2025: $15,750 single / $31,500 married filing jointly. For 2026: $16,100 single / $32,200 married filing jointly.

Itemized deductions: Specific expenses claimed on Schedule A of Form 1040, including qualifying mortgage interest. For homeowners deducting qualifying interest on a primary or second home, you need to itemize to claim the deduction.

Schedule A (Form 1040): The IRS form for itemized deductions. Qualifying home mortgage interest goes on line 8a.

Schedule E (Form 1040): The IRS form for supplemental income and loss, including rental expenses. Interest on a HELOC used to improve a rental property may be reported here.

Form 1098: The Mortgage Interest Statement your lender sends by January 31 each year. Required to claim the deduction.

Tax Cuts and Jobs Act (TCJA): The 2017 law that tied HELOC interest deductibility to qualifying home use.

One Big Beautiful Bill Act (OBBBA): A 2025 law that made the TCJA use-based rules and the $750,000 debt limit permanent.