Is the Interest on a HELOC Tax-Deductible?

When tax season rolls around, homeowners with a HELOC often ask themselves: Is the Interest on a HELOC tax-deductible?

The answer isn’t a simple yes or no. While HELOC interest was once widely deductible, today’s tax laws are stricter.

Whether you qualify depends on how you use the funds—some expenses make the cut, while others don’t.

Here’s what you need to know before filing your return.

When is HELOC interest tax-deductible?

The IRS allows HELOC interest deductions—but only under specific conditions.

The key factor is how the money is spent. For HELOC interest to be deductible, you must use the money you borrow to build, buy, or “substantially improve” the home securing the loan.

Qualified expenses can include

• Adding an extra bedroom or home office
• Remodeling a kitchen or bathroom
• Installing a new roof, HVAC system, or energy-efficient windows
• Finishing a basement or attic

The interest is not tax-deductible if you use the HELOC funds for anything else, like paying off credit card debt, covering medical expenses, or taking a vacation.

Loan limits for tax deductions

The IRS limits how much mortgage-related debt qualifies for interest deductions.

For mortgages or HELOCs taken out after December 15, 2017, homeowners can deduct interest on a combined total of up to $750,000 if filing jointly or $375,000 if filing separately—this includes both primary mortgages and HELOCs.

For example, consider a home valued at $512,200—the average sales price of a new home in 2024 —with an existing mortgage of $400,000. If you take out a HELOC of $200,000, your total mortgage-related debt would be $600,000.

Since this amount is within the $750,000 limit for joint filers, all the interest paid on the mortgage and the HELOC would be deductible.

If you took out a larger HELOC—say $400,000—your total mortgage debt would rise to $800,000. Since the IRS cap is $750,000, only the interest would be deductible. The interest on the extra $50,000 wouldn’t qualify.

How the Tax Cuts and Jobs Act (TCJA) can affect HELOC interest deductions

Before 2018, HELOC interest was deductible regardless of the funds used.

Homeowners could claim tax deductions even if they used the loan for non-home expenses like student loans or car purchases.

2018–2025 changes

The TCJA changed the rules in 2018. Now, the only allowable deduction for HELOC interest is for using the loan for home improvements.

These restrictions will remain in place through 2025.

What happens after 2025?

Unless Congress extends the current rules, the pre-2018 tax laws may return, allowing HELOC interest deductions for all purposes.

Since tax laws frequently change, it’s important to talk with a tax professional to determine how the current tax laws could affect your financial situation.

Can you deduct HELOC’s interest in non-home improvements?

This is a straightforward ‘no.’ If you use your HELOC for anything unrelated to home improvements, you can’t deduct the interest when you file your taxes.

Expenses not related to home improvements can include:

• Consolidating debt or paying off personal loans or credit cards
• Covering tuition or other education-related costs
• Making a down payment on another property
• Investing in a business
• Paying for vacations or personal expenses

Even if total mortgage debt is within IRS limits, it’s important to remember that the loan’s purpose determines whether the interest can be deducted.

What are the limits on HELOC interest deductions?

The main restrictions on HELOC interest deductions include:

• The HELOC must be secured by improving the home.
• The total mortgage and HELOC debt cannot exceed $750,000 for joint filers or $375,000 for separate filers.
• Only interest paid within the tax year can be deducted.

If your mortgage and HELOC debt exceed these limits, only a portion of the interest may qualify for deductions.

How to claim a HELOC interest deduction

To deduct HELOC interest, you must itemize your deductions instead of taking the standard deduction.

1. Decide whether to itemize or take the standard deduction

The IRS offers two options: itemizing deductions or taking the standard deduction.

For 2024, the standard deduction is:

• $14,600 for single filers
• $29,200 for married couples filing jointly
• $21,900 for heads of household

If your total itemized deductions—including mortgage and HELOC interest, property taxes, and medical expenses—exceed the standard deduction, you could save more on your taxes if you itemize.

2. Use IRS Form 1040 and Schedule A

To claim the deduction, you’ll need to:

• Report deductible interest on Schedule A (Itemized Deductions) of Form 1040
• Obtain Form 1098 (Mortgage Interest Statement) from your lender, which details the interest paid during the year

3. Keep detailed records of home improvements

The IRS may require proof that the HELOC funds were used for qualified home improvements.

To prove your expenses to the IRS, provide:

• Receipts for materials and contractor services
• Bank statements showing HELOC withdrawals and payments for renovations
• Before-and-after photos of the improvements

If you’re ever audited, solid documentation is your best defense. Keeping detailed records can mean the difference between claiming your deduction and losing it.

Should you consult a tax professional?

Tax laws are constantly changing, and navigating them can be tricky.

A tax professional can help you determine if your HELOC interest qualifies for a deduction, ensure you’re following IRS rules, and find ways to maximize your savings.

Interest on a HELOC Tax Deductible? Main takeaways

A HELOC offers financial flexibility, but tax deductions depend on how the funds are used.

Under current IRS rules, only interest on HELOCs used for home improvements is deductible, and total mortgage debt must stay within IRS limits.

If you’re considering a HELOC, understanding the tax implications and keeping thorough records can help you maximize benefits while staying compliant.

A tax professional can ensure you make the most of your home equity without unexpected tax issues.

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