Quick Answer
Yes, home equity loan and HELOC interest may be tax deductible — but only if the funds are used to buy, build, or substantially improve your primary or second home. Interest on funds used for other purposes (debt consolidation, education, etc.) is not deductible under current TCJA rules.
Key Takeaways
- Post-TCJA (2018-2026), interest is deductible only for home acquisition/improvement
- The loan must be secured by your primary or second home
- Combined mortgage + equity debt limit: $750,000 (for loans originated after 12/15/2017)
- Funds used for personal expenses, debt consolidation, or education are NOT deductible
- Keep detailed records of how you use the funds
What Changed with the TCJA
Before the Tax Cuts and Jobs Act (TCJA) of 2017, home equity interest was deductible on loans up to $100,000 regardless of how the money was used. The TCJA changed this starting in 2018:
- Old rule: Interest deductible on up to $100,000 of home equity debt for any purpose
- New rule: Interest deductible only when used to buy, build, or substantially improve the home
This change is currently set to expire after 2026, but Congress may extend it.
When IS the Interest Deductible
Qualifying Uses
- Home improvements — Kitchen remodels, bathroom additions, roof replacement, HVAC systems
- Home construction — Building a new home or major addition
- Home purchase — Using the equity loan as part of acquiring the home
Requirements
- The loan must be secured by the home (both HELOCs and home equity loans qualify)
- The home must be your primary residence or second home
- Total acquisition debt (mortgage + equity loan) cannot exceed $750,000
When is Interest NOT Deductible
Non-Qualifying Uses
- Debt consolidation — Paying off credit cards or personal loans
- Education expenses — College tuition, student loans
- Vehicle purchases — Buying a car or boat
- Medical expenses — Healthcare costs
- Personal expenses — Vacations, weddings, general spending
- Investment purposes — Buying stocks or other investments
How to Claim the Deduction
- Itemize deductions on Schedule A (you cannot take the standard deduction and also deduct mortgage interest)
- Report on Form 1098 — Your lender will send this form showing interest paid
- Keep documentation — Maintain records proving how funds were used for home improvements
Example Scenarios
Scenario 1: Deductible
You take a $50,000 home equity loan to add a new room and renovate the kitchen. Interest on this loan is deductible (subject to the $750K total debt limit).
Scenario 2: Not Deductible
You take a $30,000 HELOC draw to pay off credit card debt. Interest on this amount is NOT deductible.
Scenario 3: Mixed Use
You borrow $40,000 — $25,000 for a new roof (improvement) and $15,000 for a car. Only the interest on the $25,000 portion is deductible.
FAQ
Does the TCJA provision expire? The TCJA provisions are currently set to sunset after 2026. After that, pre-TCJA rules may return ($100,000 home equity debt deduction for any purpose).
What is “substantial improvement”? The IRS considers improvements that add to the value of your home, prolong its useful life, or adapt it to new uses as “substantial.” Repairs and maintenance do not qualify.
Do I need to track HELOC draws separately? Yes, if you use your HELOC for both qualifying and non-qualifying purposes, track each draw and its purpose separately.
What if my total debt exceeds $750,000? You can only deduct interest on the first $750,000 of combined acquisition debt. Any amount above that threshold is not deductible.
Related Resources
- Home Equity Loan vs HELOC Calculator — Compare costs
- Pros & Cons Guide — Which is right for you?
- Closing Costs Guide — Understand the fees