Is HELOC Interest Tax Deductible? A Complete Guide

Prostock-Studio / iStock.com

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Yes, home equity line of credit (HELOC) interest is tax-deductible — but only if the funds are used to buy, build or substantially improve your home. According to the IRS, interest is only deductible under these conditions, and other limits apply.

Whether you’re renovating your home or paying off debt, understanding these rules can help you maximize your tax savings.

What Is a HELOC and Why Does It Matter?

A Home Equity Line of Credit (HELOC) allows homeowners to borrow against the equity in their home. It’s like having a credit card but with your home as collateral. With a HELOC, you can withdraw funds as needed, typically up to a certain limit and you only pay interest on the money you use.

Now, when it comes to taxes, the IRS has specific guidelines about whether you can deduct the interest on the HELOC. So, let’s dive into the specifics of is HELOC interest tax deductible and what conditions must be met.

Is HELOC Interest Tax-Deductible?

Under the Tax Cuts and Jobs Act (TCJA) of 2017, the interest on HELOCs is tax-deductible as long as the funds were used to “buy, build or substantially improve your home.” The loan must be secured by the main home or second home and meet other requirements.

How much you can deduct depends on the date of the mortgage, the amount of the loan and how you use the loan proceeds. In most cases, the IRS states that homeowners can deduct all their HELOC interest as long it falls within the guidelines. You also must itemize your deductions. 

How Does the HELOC Interest Deduction Work?

If you qualify for the HELOC interest deduction, understanding how to calculate and claim it is important. Here’s a quick overview of how it works:

• Eligibility: You must use the HELOC funds for your main or secondary home and the funds must go toward buying, building or making substantial improvements to the property. Minor or cosmetic updates don’t qualify as substantial home improvements and aren’t eligible for the HELOC interest deduction. 
• Deductibility: If you meet these requirements, you can generally deduct the interest you paid on the HELOC, subject to IRS limits.
• Limits: For home loans taken out after December 15, 2017, the deduction is limited to interest paid on up to $750,000 in mortgage debt if you’re married and filing jointly, or $375,000 if you’re married and filing separately. For loans before this date, the limit is $1 million for joint filers.

When Is HELOC Interest Not Deductible?

HELOC interest is not deductible in the following situations:

• Debt consolidation: If you use your HELOC to pay off debt like credit cards, student loans or personal loans, the interest is not deductible.
• Personal expenses: Using your HELOC for personal expenses, such as vacations, weddings or anything unrelated to your home, makes the interest non-deductible.
• Improving another property: If you use your HELOC to improve a property other than the one securing the loan (e.g., using a HELOC on your primary home to fund a second home’s renovations), the interest isn’t deductible.

What Qualifies as a Substantial Home Improvement?

To qualify for the deduction, your home improvement must be substantial. Here are examples of what qualifies:

• Major additions: Adding a room, deck or garage to your home.
• Renovations: Remodeling a kitchen or bathroom, replacing your roof or upgrading windows or flooring.
• System upgrades: Installing solar panels, replacing your HVAC system or upgrading insulation.
• Structural work: Projects like replacing foundations or finishing basements and attics.
• Accessibility improvements: Adding wheelchair access or modifying bathrooms for accessibility.

If your renovation doesn’t meet these criteria, the interest on your HELOC won’t be deductible.

IRS Limits for Mortgage Interest Deductions

There are IRS limits for mortgage interest deductions. Take a look at the following table for the breakdown.

How to Calculate Your HELOC Interest Deduction

If you qualify for the HELOC interest deduction, follow this step-by-step guide on how to calculate deductible interest based on the IRS limits for mortgage interest and how to claim the deduction on tax forms.

Step 1: Gather your documentation. Before tax season, you should receive IRS Form 1098, Mortgage Interest Statement, from your lender. This shows the interest you paid on your primary mortgage and HELOC. You’ll also need receipts and bank statements to show how much you paid to build, buy or substantially improve your home in case of an IRS audit.

Step 2: Confirm your eligibility. Make certain your HELOC interest is deductible. Remember you can only deduct HELOC interest that was used for your main home or qualified second home and it was used to buy, build or improve the home substantially. IRS Publication 936 provides clear instructions on how to calculate deductible interest for home equity loans used for home improvements.

Step 3: Check the total interest paid. Check your Form 1098 from the lender — it reports how much mortgage interest (including HELOC interest) you paid during the tax year.

Step 4: Determine the deductible portion. You can deduct either the full or partial amount of HELOC interest.

• Deduct 100% of the interest. If you used the HELOC funds to make home improvements, then 100% of the interest paid may be deductible if your mortgage and HELOC fall within IRS dollar limits.
• Prorate the interest. If you used only part of the HELOC funds to make home improvements, you can claim the deduction only on that portion. For example, let’s say 60% of HELOC funds were used to make home improvements, while the remaining 40% was used to pay off credit card debt. You paid $2,000 in interest over the year. To determine your deductible interest, multiply $2,000 by 60% to get $1,200.

Here is a table to further illustrate the point: 

Determine the Deductible Portion of the Heloc Interest

How to Claim the HELOC Interest Deduction on Your Tax Return

To claim your HELOC interest deduction, follow these steps:

1. Keep all records: Keep all relevant documents, including loan agreements and receipts, in case of an IRS audit.
2. Itemize your deductions: You can only claim the deduction if you itemize on Schedule A (Form 1040). The standard deduction does not allow for this.
3. Complete Schedule A: On Schedule A, report the mortgage interest (including HELOC interest) that was deducted from Form 1098. Enter the amount on Line 8a.

Final Take to GO: What You Need to Know About the HELOC Interest Deduction

• HELOC interest is deductible only if the funds were used to buy, build, or improve your home.
• Itemize your deductions on Schedule A to claim the deduction.
• The IRS imposes limits on the total mortgage debt that qualifies for the deduction.
• Keep detailed records of how you used the HELOC funds to support your deduction in case of an audit.

If you’re unsure about your eligibility or how to calculate the deduction, consider speaking to a tax professional. They can help you navigate the rules and make sure you’re maximizing your tax benefits.

Information is accurate as of July 7, 2025.

Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.

Share This Article: