Using a HELOC for Strategic Tax Planning at Year-End

Last updated: July 2025

As the calendar winds down, savvy homeowners look for smart ways to optimize their tax liabilities. A Home Equity Line of Credit (HELOC) can be a powerful tool in your year-end strategy. 

Tapping into your home’s equity can fund deductible home improvements, harvest tax credits, or accelerate charitable contributions without liquidating investments or maxing out credit cards.

We’ll explore how to leverage a HELOC for strategic tax planning at year-end, weigh its benefits and considerations, and guide you through HomeEQ’s streamlined online application process, so you can act with confidence and clarity before the December deadlines.

What are the benefits of using a HELOC for year-end tax planning?

A home equity line of credit (HELOC) provides homeowners with flexible access to funds that can be leveraged for financial and tax planning, particularly as the calendar year draws to a close. 

Strategic use of a HELOC can allow you to:

• Fund tax-deductible expenses before the year ends
• Accelerate key payments that increase itemized deductions
• Cover one-time costs that support tax optimization
• Improve liquidity without selling long-term investments

Because HELOCs often feature lower interest rates and interest-only repayment options, they can serve as a tactical bridge between current obligations and future cash inflows, especially when managing taxable events or minimizing adjusted gross income (AGI).

Start an application with HomeEQ to discover your home equity options.

How can a HELOC support deductible expenses or charitable giving?

At year-end, many individuals and small business owners look to increase their deductible expenses to reduce taxable income. A HELOC can help fund these expenses while preserving cash or avoiding asset liquidation.

Common year-end deductible uses for HELOC funds:

• Charitable contributions: Make large donations before December 31 to qualify for the current year’s deduction. A HELOC can enable this even if cash is tight temporarily.
• Prepaying medical expenses: If you’re close to exceeding 7.5% of your AGI, a HELOC can help you pay additional qualified expenses before year-end.
• Business expenses: Self-employed individuals can use HELOC funds to purchase equipment, inventory, or marketing services and deduct those costs this tax year.
• Energy-efficient home improvements: Certain green upgrades qualify for federal tax credits. If planned before the end of the year, a HELOC can fund the installation of solar panels, energy-efficient windows, or HVAC systems.

Illustrative scenario: Olivia, a self-employed interior designer, used $12,000 from her HELOC in December to prepay for photography, software licenses, and a contractor’s retainer. These expenses increased her itemized deductions and decreased her taxable business income, without impacting her operational cash flow.

Learn how a HELOC works with HomeEQ.

What tax rules apply to HELOC interest deductions?

The Tax Cuts and Jobs Act (TCJA) significantly changed the deductibility of home equity loan interest. 

Since 2018, HELOC interest has only been considered deductible under specific conditions: the funds must be used to “buy, build, or substantially improve” the home that secures the loan.

Here’s what this means:

• Deductible: Using your HELOC to renovate or expand your primary residence (the home that secures the loan).
• Non-deductible: Using your HELOC for tuition, medical bills, investments, or even vacation home upgrades, even if the expense itself is tax-deductible.

That said, you can still use a HELOC for year-end expenses that benefit your tax situation, even if the interest isn’t deductible.

Pro tip: Keep meticulous records. If you plan to claim deductions, document how HELOC funds were used and consult with a tax advisor before filing.

Use the HomeEQ HELOC calculator. 

What year-end scenarios make a HELOC a smart option?

Several specific year-end situations may justify the use of a HELOC as a tax and liquidity tool:

1. Accelerating deductible expenses: If you’re close to the threshold for itemizing, prepaying your property taxes or making an extra mortgage payment using a HELOC can push you over the line.
2. Strategic charitable giving: Donor-advised funds allow you to front-load charitable contributions for the year. Using a HELOC to fund a DAF before year-end lets you claim the deduction now and distribute the funds later.
3. Avoiding capital gains: If you’re planning to sell stocks but want to avoid realizing gains this year, a HELOC can provide the liquidity you need now.
4. Covering Q4 business expenses: Using HELOC funds to prepay services or equipment for your business can shift deductions into the current tax year, boosting cash flow and reducing tax owed.
5. Bridging year-end bonuses or commissions: If your income spikes in Q4 and you expect a higher tax bill, a HELOC can provide a buffer while you optimize withholding and plan deductions.

What are the risks and limitations to consider?

While a HELOC can be a helpful tax-planning tool, it’s important to weigh the risks:

1. Interest deductibility is limited: Even if the funds are used for tax-advantaged purposes, the HELOC interest may not be deductible unless it directly improves your primary home.
2. Cash flow mismatches: Using a HELOC temporarily boosts liquidity, but repayment still looms. Make sure you’re comfortable with the monthly obligations.
3. Secured by your home: A HELOC is not risk-free. Defaulting on payments can result in foreclosure.
4. Tax consequences of misreporting: If you mistakenly claim HELOC interest as deductible when it isn’t, you could face IRS penalties. Documentation is essential.
5. Opportunity cost: Consider whether other financing tools, such as 0% APR business credit cards or savings drawdowns, may better suit your financial goals.

FAQ: HELOCs and end-of-year tax planning

Can I deduct HELOC interest on taxes?

Only if the funds were used toward buying, building, or substantially improving the home that is securing the loan. Most other uses, including charitable giving or medical expenses, do not qualify for the interest deduction.

Is using a HELOC for charitable giving allowed?

Yes. While the donation may be deductible, the interest on the HELOC used to fund it is likely not.

What happens if I use it for investment or debt payoff?

Those uses may benefit your financial situation, but they don’t qualify for interest deductions. Be mindful of opportunity cost and market timing.

Should I use a HELOC instead of selling stocks?

If you want to avoid triggering capital gains in the current tax year, a HELOC can bridge your liquidity needs. Just ensure you have a repayment plan.

Can I fund Q4 expenses now and deduct them this year?

Yes. If you use a HELOC to prepay legitimate deductible expenses before December 31, you can generally claim those deductions in the current tax year.

HELOCs can be a great choice for year-end tax strategies

A HELOC can be a powerful year-end planning tool when used with precision and caution. 

Whether you’re managing your business, maximizing deductions, or supporting a cause you believe in, tapping your home equity may offer the timing and flexibility you need to close out the year on strong financial footing.

Check your HELOC eligibility instantly and discover what your funding options are in just a few minutes.