If you’re using a home equity line of credit (HELOC), you might be wondering whether the interest you’re paying is tax deductible. The answer depends on a few key factors, especially how you’re using the money and whether your loan meets the IRS’s definition of acquisition debt.
Before the Tax Cuts and Jobs Act of 2017, interest on home equity loans was generally deductible regardless of what the funds were used for. But those rules have changed. Now, the IRS only allows a tax deduction for HELOC interest if the money is used to buy, build, or substantially improve the home that secures the loan. That means using your HELOC for personal expenses, like paying off credit card debt or funding a vacation, will not make the interest deductible.
Home equity loans and HELOCs are both ways of borrowing against your home equity. A home equity loan is a lump sum, while a HELOC is a revolving line of credit. Even though they are different types of loans, the tax rules that apply to their interest payments are mostly the same under the current tax code.
The IRS treats both types as second mortgages, so long as they are secured by your home. To deduct the interest on either type of loan, the funds must be used for qualified purposes. According to IRS guidelines, that means the loan must be used to buy, build, or substantially improve your primary residence or second home.
When it comes to deducting home equity loan interest, the key is documentation. You’ll need to show how the money was used. If the funds were used for home improvements—like upgrading your kitchen, renovating a bathroom, or replacing your roof—then your interest payments may qualify as deductible.
If you took out the loan before the end of 2017, the old rules may still apply, especially if you’re claiming deductions under prior tax years. However, for current returns, only improvements that add value to the home and are properly documented will meet the IRS’s standard.
An important point to keep in mind: you can only deduct interest on the portion of your home equity loan that, combined with your primary mortgage, doesn’t exceed the value of the home. So if your home is worth $300,000 and you owe $250,000, you can only deduct interest on up to $50,000 of additional debt used for improvements.
If you’re eligible to deduct interest on a HELOC or home equity loan, you’ll need to itemize your deductions on your tax return using Schedule A. You cannot take the standard deduction and still deduct mortgage interest.
Also, be aware that many taxpayers no longer itemize due to the increased standard deduction from recent changes to tax law. Unless your total itemized deductions—including mortgage interest, property taxes, and other eligible expenses—exceed the standard deduction, it might not make sense to deduct your HELOC interest.
For married couples filing jointly, the standard deduction for 2025 is $30,000. For single filers, it’s $15,000. If your total itemized deductions fall short of those amounts, it’s better to stick with the standard deduction.
If you’re unsure whether to deduct interest, speak with a trusted tax advisor or housing counselor. Credit.org offers free help from certified professionals who can review your financial situation and advise you on the best course of action.
Learn more about the Basics of Taxes from Credit.org.
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A home equity line gives you flexibility, much like a credit card backed by your home. You can borrow funds, pay them down, and borrow again as needed during the draw period. Because of this revolving nature, the interest amount can fluctuate based on how much you borrow and the prevailing interest rate.
As with a home equity loan, interest is only deductible if the funds are used to improve the home securing the loan. This includes permanent additions like finishing a basement, adding a new room, or installing energy-efficient systems. It does not include purchases like new furniture, paying down student loans, or taking a family trip.
Documenting your use of the funds is essential. Save receipts, contracts, and bank statements showing the money went toward home improvement. Without proper documentation, the IRS may disallow your deduction.
Example: If you take out a $30,000 HELOC and spend $20,000 remodeling your kitchen and $10,000 on credit card debt, only the interest on the $20,000 used for home improvement is tax deductible.
Let’s take a closer look at when is HELOC interest deductible. Under the current law, it must meet three main conditions:
If all three apply, then you may be able to deduct the interest you paid on your HELOC during the tax year. It’s important to understand that this rule applies whether your HELOC is for $10,000 or $100,000—the use of the funds is what matters, not the size of the loan.
Remember, interest on HELOCs used for personal living expenses, such as tuition, cars, or debt consolidation, is not deductible. Even if the loan is secured by your home, you won’t qualify for a deduction unless the money goes toward home acquisition debt.
HELOC interest can become a costly part of homeownership if not managed properly. Since HELOCs typically have variable interest rates, the amount of interest you owe can rise over time, especially in an environment where rates are increasing.
Understanding how the interest works can help you make better financial decisions. During the draw period (usually 5 to 10 years), you may be required to make only interest payments. After that, you enter the repayment phase, which includes both principal and interest. Your monthly payments will likely increase significantly during this phase.
Knowing whether your interest is tax deductible can ease the burden. If it’s not deductible, you should factor that into your long-term cost analysis. In many cases, homeowners find that a HELOC makes financial sense only when used as a tool for targeted home improvements, not for general borrowing.
Learn more about HELOC Reset Help from Credit.org.
The Tax Cuts and Jobs Act (TCJA), which took effect in 2018, brought major changes to mortgage interest deductions, including those for HELOCs. Previously, interest on up to $100,000 of home equity debt could be deducted no matter how the money was used. That provision is no longer in place.
Now, to qualify for a deduction, your HELOC must meet the rules for acquisition debt—meaning the funds must go toward buying, building, or improving your home.
The TCJA is currently set to expire after 2025 unless Congress extends it. If it does expire, some of the older rules may return, making HELOC interest more broadly deductible again. Keep an eye on tax law changes or consult a tax professional for updates that may impact your deduction eligibility.
One area of confusion is the concept of “HELOC interest tax.” This is not a separate tax, but rather a reference to whether the interest you pay on your HELOC is eligible for a deduction. There is no specific tax on HELOCs—but failing to follow the IRS rules could cost you at tax time by reducing your eligible deductions.
If you’re deducting HELOC interest, be sure you have proper documentation, such as contractor invoices, receipts for materials, and payment records that show how the loan funds were used. This is especially critical if you’re ever audited by the IRS.
Your equity line of credit offers a convenient way to borrow as needed, but that flexibility comes with responsibility. The temptation to use your equity line for everyday spending, emergency expenses, or even debt consolidation can be high.
However, doing so means you’ll lose out on the ability to deduct the interest. Even worse, you’re putting your home at risk by tying it to debts that don’t contribute to the value of your property.
If your goal is to make the most of your home equity while protecting your financial well-being, use your equity line only for projects that meet the IRS’s standard for deductible expenses.
In the end, the question of whether HELOC interest is tax deductible should be part of a bigger discussion about what makes financial sense for your situation.
A HELOC can be a useful financial tool if you need to fund a major home renovation that increases your home’s value. But using it for vacations, vehicles, or daily expenses is risky—and the interest won’t be deductible.
If you’re unsure how to make the most of your HELOC or whether to claim the deduction, talk to a nonprofit housing counselor. Counselors can help you create a long-term plan, evaluate your borrowing options, and ensure you’re making smart choices with your equity.
