Is HELOC Interest Tax Deductible?

Figure Out If You Can Deduct HELOC Interest This Year

Homeowners who use a home equity line of credit (HELOC) often wonder if HELOC interest is deductible. While the answer isn’t cut and dry, you can equip yourself with the right information to handle tax filing with ease. There are IRS rules specific to HELOCs that might change, so it’s a good idea to plan ahead when tapping your home’s equity. 

Can You Deduct HELOC Interest on Your Taxes?

When filing your taxes for 2025 and 2026, HELOC interest is tax-deductible if the funds were used to buy, build, or substantially improve the home that secures your loan. While these restrictions were originally scheduled to expire in 2026, the One Big Beautiful Bill Act (OBBBA) made them permanent. 

HELOC Tax Deduction Rules

For 2025 taxes, the primary rule is this: you can deduct HELOC interest only if you use the funds to buy, build, or substantially improve your home—not for debt consolidation or personal expenses. This means you still can’t deduct interest on funds used for debt consolidation or personal purchases. The total mortgage debt limit for this deduction remains capped at $750,000 for most tax filers. 

The IRS establishes tax rules after Congress passes legislation. For example, the Tax Cuts and Jobs Act (TCJA) of 2017 set the current IRS rules regarding tax deductions for HELOCs. Before filing your taxes, it’s best to confirm any potential changes to deduction rules. 

How HELOC Funds Are Used

Under the permanent OBBBA guidelines, the use of your funds is the deciding factor for deductibility. The funds must be used for “capital improvements,” which the IRS stipulates must add value to your home, prolong its useful life, or adapt it to new uses. For example, you can’t deduct interest on money you used to paint or make minor repairs to your home. 

This table includes examples of when you can and can’t deduct your interest:

There are some gray areas with eligibility, which is why it’s always a good idea to talk to a tax professional to find out what is and isn’t eligible for a tax break.

Financial Limits on HELOC Interest Deductions

The OBBBA also made the TCJA’s debt limits permanent. So, for the 2025 tax year, the limit is $750,000 of combined mortgage and HELOC debt for joint filers and $375,000 for married filing separately. Some grandfathered debts may still fall under old limits. 

How to Claim the HELOC Interest Deduction

To claim a HELOC interest deduction, make sure you itemize all your deductions on Schedule A (Form 1040). Based on the higher standard deduction for 2025, itemizing only makes sense if your total deductions are higher than these thresholds.

1. Confirm Your Eligibility

First, make sure you’re eligible. For the 2025 tax year (returns filed in 2026), the standard deduction amounts are (per IRS–adjusted figures):

• $15,750 for single filers (and married filing separately)
• $31,500 for married filing jointly
• $23,625 for head of household

Therefore your itemized deductions, including your HELOC interest, must be higher than these standard deductions for it to be worth claiming.  

2. Gather the Required Documentation

You’ll need to make sure you have all your documents in order. Gather your Mortgage Interest Statement (Form 1098) and any other proof of additional interest paid. Lastly, don’t forget documentation showing how you spent the funds. This documentation can include invoices and receipts that show how much you spent on capital improvements.

3. Calculate and Itemize Deductions

For this step, you’ll need to decide if your itemized deductions are more than the standard amounts. If your total expenses, including HELOC interest, exceed these amounts, itemizing is the way to go. 

4. File on Schedule A (Form 1040

If you decide to itemize your deductions, you’ll file taxes on Schedule A (Form 1040). This lets you show the interest paid on your HELOC. Don’t forget, a qualified tax professional can help you confirm eligibility, advise if itemizing is the right choice, and provide other guidance for accurate filing. 

Common Mistakes That May Disqualify Your HELOC Tax Deduction

Documenting your HELOC spending is crucial for potential tax deductions. Be aware of common mistakes that could impact your ability to claim HELOC interest, including: 

• Losing required documentation: Save and keep track of receipts and invoices that show how HELOC funds were used. 
• Mixing funds for personal and home use: Only funds used to buy, build, or substantially improve your home qualify. If you use HELOC funds for a kitchen remodel and a family vacation, only the funds used for the kitchen would qualify.
• Using funds to consolidate debt: Consolidating debt from high-interest credit cards into a lower-interest HELOC can save you money, but it doesn’t qualify for a tax deduction.
• Trying to deduct routine maintenance: Small fixes, like a fresh coat of paint or fixing a broken garbage disposal, are not deductible. Only substantial improvements—such as a new deck or roof replacement—qualify.
• Going over the debt limits: You can’t exceed the limits currently set by the IRS. This limit includes your first mortgage interest plus the interest from your home equity line or loans. 

Final Thoughts: Is the HELOC Deduction Worth It?

HELOCs can help you tap into your home’s equity so that you can consolidate debt, buy a car, or make home improvements. However, you can’t deduct the interest rate for every purpose. If you want to tap into the tax benefits of a HELOC, make sure you meet IRS guidelines for what is deductible. Remember the “buy, build, or substantially improve your home” rule. If you’re ready to start improving your house, get started on a HELOC today.