Key Takeaways
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Interest on home equity loans and HELOCs is only deductible if the funds are used for home improvements, not personal expenses.
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There are limits on how much mortgage-related debt qualifies for deductions: $750,000 for joint filers (after 2017) and $1 million (before 2017).
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To claim the deduction, you must itemize deductions instead of taking the standard deduction, which only benefits you if your total deductions exceed the standard deduction.
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The current tax rules for home equity loan interest deductions may change after 2025, so homeowners should stay informed and consult a tax professional.
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If you have a home equity loan (HELOAN) or a home equity line of credit (HELOC), you may be wondering if the interest you pay is tax-deductible. The answer depends on how the funds were used and whether itemizing deductions makes financial sense for you.
When Is A Home Equity Loan and Home Equity Line of Credit Interest Tax-Deductible?
The IRS allows homeowners to deduct interest on home equity loans and HELOCs only if the borrowed funds were used to buy, build, or substantially improve the property that secures the loan. If the money was spent on personal expenses—like paying off debt, covering tuition, or funding a vacation—the interest is not deductible.
Additionally, there are limits to how much mortgage-related debt qualifies for deductions:
- For loans taken out after Dec. 15, 2017: Interest is deductible on a combined total of up to $750,000 of mortgage debt for joint filers ($375,000 for single or separate filers).
- For loans taken out before Dec. 15, 2017: The limit is $1 million for joint filers ($500,000 for single or separate filers).
- These limits include both your primary mortgage and any home equity loans or HELOCs.
How to Claim a HELOC Interest Deduction
To deduct your home equity loan or HELOC interest, follow these steps:
Ensure your loan qualifies – The funds must have been used for home improvements that increase your property’s value or extend its lifespan.
Gather necessary documents – You’ll need Form 1098 (Mortgage Interest Statement) from your lender, plus receipts or invoices for home improvements.
Decide whether to itemize deductions – You must itemize instead of taking the standard deduction. This is only beneficial if your total deductions exceed the standard deduction ($29,200 for joint filers in 2024).
Are Home Equity Loans Tax-Deductible in 2025?
As of now, home equity loan interest remains deductible under current tax laws. However, the Tax Cuts and Jobs Act of 2017 is set to expire at the end of 2025, meaning tax rules could change. Homeowners should stay informed and consult a tax professional to maximize deductions.
CAN I WRITE OFF MY PAID INTEREST?
HELOAN interest can be tax-deductible, but only if the loan is used for qualified home improvements. Since itemizing is required, it’s essential to compare total deductions to the standard deduction to see if it’s worth it.
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FAQ: Home Equity Loan and HELOC Interest Deduction
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