Is HELOC Interest Tax Deductible?

Yes, HELOC interest can still be deducted as mortgage interest in 2026, but only if the money went into the house. There is a second condition, and this is where the catch is: the break only helps if you itemize.

Your lender may call it a HELOC, a home equity loan, or a second mortgage. But the name does not matter to the IRS. What matters is how the money is used. You can deduct the interest if all four of these apply:

• You used the loan proceeds to buy, build, or substantially improve a home.
• The loan is secured by that same home, which must be your main home or a second home.
• Your total debt for buying and improving your main home and any second home stays within the IRS limit.
• You itemize your deductions on Schedule A.

For example, the IRS explains that if you take out a home equity loan on your main home and use it to buy a vacation home, the interest does not qualify.

What counts as substantially improving your home

A home improvement qualifies if it increases your home's value, helps it last longer, or changes it so it can be used in a new way, according to IRS Publication 936. Some examples are replacing your roof, installing central air conditioning, remodeling your kitchen, or adding a swimming pool.

Simply repainting a room usually does not count; however, painting may qualify when it is part of a larger renovation.

How much home equity loan interest you can deduct

The IRS limit is $750,000 in combined home purchase and improvement debt for loans taken out after December 15, 2017. If you're married filing separately, the limit is half.

If your total home purchase and improvement debt is higher than the limit, you can still deduct part of your interest. The worksheet in IRS Publication 936 divides the limit by the average balance of those loans to determine how much qualifies. For example, if your total debt is $800,000, about 94% of the interest goes on Schedule A.

If you spend your HELOC on personal expenses, such as paying off credit cards or student loans, buying a car, or combining other debts through a debt consolidation loan, the interest generally does not qualify for the home mortgage interest deduction.

There is a separate rule for education. If you use the line only for tuition and other qualified education costs, or only to pay off a qualified student loan, you may qualify for the student loan interest deduction instead. Under IRS Publication 970, this deduction is limited to $2,500 per year and phases out at higher incomes. Using even part of the line for something unrelated disqualifies it.

If you use one HELOC for both home improvements and personal expenses, you need to separate the interest based on how the money was spent. Say you use $50,000 for home improvements and $30,000 to pay off credit cards. In that case, 62.5% of the interest qualifies. As you pay down the HELOC, the part connected to the credit card debt is paid down first, so the share of interest that qualifies goes up over time.

Yes. The rules that started in 2017 were originally set to end after 2025, which is why some older articles said the previous tax break for home equity debt would return. Congress changed the law in July 2025 through Public Law 119-21, and the current rules are now permanent.

You must still use the money to buy, build, or substantially improve the home securing the loan, and the $750,000 debt limit remains in place. The old rule that allowed $100,000 in home equity debt to be used for almost any purpose is no longer available on your federal tax return.

It might, but only if your itemized deductions beat the standard deduction, and truth be told, for most filers they don't. Just 9.5% of returns itemized in tax year 2022, before the SALT cap rose, per IRS data.

For 2026, the standard deduction for married couples filing jointly is $32,200 ($31,500 for 2025), and single filers get half that. The higher SALT cap, $40,400 for 2026, may help more households itemize.

Here is how $4,800 in yearly HELOC interest could affect three married couples' 2026 returns. The example assumes a $60,000 HELOC used for a home remodel at a hypothetical 8% interest rate:

The second couple saves $352, not the $1,056 their bracket suggests, because most of the added interest only brings their deductions up to the standard deduction. For the third couple, the tax savings lower the estimated after-tax cost of the HELOC interest to about 6.1%.

Before taking money out, use our HELOC calculator to estimate your payments. You can also read our homeowner tax deductions guide to learn about other possible deductions.

The IRS looks at how you use the money to decide how the interest is treated for tax purposes. If you use HELOC funds to buy or improve a rental property, the interest counts as a rental expense on Schedule E even though your own home is the collateral. When the rental loses money, the passive activity rules may delay that deduction. If you use the money for your own business as a sole proprietor, the interest may count as a business expense on Schedule C. And if you buy stocks or other investments, the interest goes on Form 4952; that deduction can't exceed your net investment income, and you must itemize to benefit from it.

If your HELOC interest qualifies, you generally report it on Schedule A, line 8a. There is also a box to check if you did not use all the loan proceeds to buy, build, or improve your home. It is your responsibility to figure out how much interest qualifies. Your lender's Form 1098 reports the total interest paid during the year, but it does not determine whether your use of the money meets IRS rules.

Keep your contractor invoices and HELOC draw statements. And when possible, pay contractors directly from the HELOC so it is easier to show where the money went.

Paid for the work first, then opened the HELOC?

You may still qualify, even if you charged the remodel to a card and paid it off with the line. Under IRS Publication 936, if you take out the HELOC within 90 days after the work is finished, the debt can count as home acquisition debt up to the cost of the improvements made during the 24 months before the work was completed. Miss the 90-day deadline and this rule no longer helps. The same window can apply if you bought a home with cash, up to the amount you paid for it. A tax professional can help you check your dates and determine whether your loan qualifies.

California, New York, and Hawaii, for example, still use the pre-2018 rules on the state return. Under those rules, up to $100,000 in home equity debt may qualify even if you used the money to pay off a car. Pennsylvania, though, takes a different approach and does not allow itemized deductions.

In Texas and other states without a personal income tax on wages, the federal rules are the only ones that matter here. Texas does have its own rules for home equity borrowing: your first mortgage and home equity debt cannot exceed 80% of your home's value. Each Texas HELOC draw must also be a documented advance of at least $4,000, which can help show how the money was used.