Are HELOCs Tax-Deductible? How to Deduct HELOC Interest From Taxes

Home equity lines of credit (HELOCs) not only offer access to cash, they can also yield a tax break in certain situations. Through the end of 2025, interest on home equity loans and HELOCs is tax-deductible if you use the money to “buy, build, or substantially improve the residence” that secures the loan. 

After 2025, interest may be tax-deductible regardless of how you use the funds, depending updates to the tax policy. Regardless, claiming a HELOC tax deduction can save you money at tax time. Here’s a look at how home equity line of credit tax advantages work and how to qualify. 

Table of Contents

1. Are HELOCs tax-deductible? 
2. Are home equity loans tax-deductible, too? 
3. HELOC tax deduction rules
4. How to write off HELOC interest 
5. Where to get HELOC tax advantages 

Are HELOCs tax-deductible? 

A HELOC is a revolving line of credit you can draw against as needed. HELOCS are considered a second mortgage because they are secured by your home.

As you draw from the line of credit, you must repay the balance with interest. The interest you pay on the HELOC may be tax-deductible if you use the funds to buy, build, or substantially improve the home that secures the HELOC.

The IRS doesn’t give specifics about what it means to “substantially improve” a home, but it generally means permanent updates or upgrades that add value to the property. That could include:

• Replacing the roof
• Remodeling a kitchen or bathroom
• Building an extension or adding another floor
• Upgrading your appliances
• Installing solar panels or wind turbines
• Finishing an attic or basement to create more living space
• Upgrading your HVAC, plumbing, or electrical systems
• Adding or replacing a deck
• Replacing garage doors
• Refinishing hardwood floors

Those are just a few examples of what could be considered tax-deductible uses for a HELOC. For any projects you tackle, it’s wise to keep accurate receipts showing where and how you spent your HELOC. They could come in handy if you’re audited for any reason later. 

The buy/build/improve rule took effect with the 2017 Tax Cuts and Jobs Act (TCJA) and applies to HELOCs taken out between 2018 and 2025. Before 2018, you could deduct HELOC interest regardless of how you used the money. If the TCJA expires at the end of 2025, the pre-2018 policy could resume for HELOCs. 

Are home equity loans tax-deductible, too? 

Home equity loans are another type of second mortgage secured by your home. You repay the loan with interest, the same as you do your primary mortgage. Your lender might give you the option to buy points to lower your home equity loan rate. 

The loan principal on a home equity loan isn’t tax-deductible, but the interest and points may be if the money, again, goes toward buying, building, or substantially improving the property.

Can you write off home equity loan or HELOC interest if you use the money for something else, like debt consolidation or wedding expenses? Right now, the answer is no; the current tax rules only allow a deduction for expenses directly related to your home. 

That could change, however, depending on if the current TCJA rules expire after 2025.

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Learn more about home equity loan tax deductions here

HELOC tax deduction rules

The IRS sets the guidelines for when HELOC interest is deductible. Here’s a recap of the current rules, which are good through December 2025: 

• The HELOC must be secured by a qualifying residence, which could be the home you live in, a second home, or a vacation property you own. 
• You must use your HELOC to buy, build, or substantially improve the home. 
• Your HELOC debt can’t exceed the value of the home. 

For IRS purposes, a home can be a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. 

It’s important to note that the deduction for HELOC interest is limited. You can deduct mortgage interest up to a certain amount of indebtedness, which is tied to your tax filing status. 

Here’s how the limits compare for HELOCs before and after 2018. 

Tax filing status	Debt limit pre-2018*	Debt limit 2018 – 2025*
Single or married filing separately	$500,000	$375,000
Married filing jointly	$1 million	$750,000

*Mortgage + HELOC combined

As long as your mortgage indebtedness isn’t above the allowed limit for your tax filing status, all the interest you pay on a HELOC could be deductible. 

For example, say you’re a single filer and owe $200,000 on your first mortgage. You have enough equity in the home to qualify for a $150,000 HELOC. Since your total mortgage debt is $350,000, you’d be under the $375,000 cap and could write off all the HELOC interest you paid. 

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What if you owe $300,000 on your first mortgage instead? Since your total mortgage indebtedness is $450,000, that would reduce some of the interest you could deduct with a HELOC. 

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How to write off HELOC interest 

You can write off HELOC interest when you file your federal income tax return. It’s a fairly simple process. Here’s how it works, step by step:

1. Obtain IRS Form 1098, Mortgage Interest Statement, from your lender. These forms are usually mailed in January or early February each year. Your lender will also send a copy to the IRS. 
2. Review your receipts to see how your HELOC funds were spent. The amount isn’t important; you’re just checking to make sure all the money went toward buying, building, or substantially improving your home so that the interest is deductible.
3. Complete your tax return. You’ll list mortgage interest on Schedule A of your Form 1040. On your Form 1098, you’ll see the amount of mortgage interest paid in Box 1 and points paid in Box 6, while Box 2 shows your outstanding mortgage balance. You’ll enter those amounts on your return to figure your deduction.

If you’re using an online tax filing program, the software should walk you through the necessary steps to claim the mortgage interest deduction. Now, here’s one important note: You’ll need to itemize to deduct HELOC interest. 

Itemizing means you list out individual expenses to deduct on your tax return. That’s different from claiming a standard deduction, which is a flat dollar amount you subtract from your taxable income based on your filing status. 

The IRS determines and adjusts standard deduction limits each year. Here are the standard deduction amounts for the 2024 and 2025 tax years.

	2024	2025
Single and married filing separately	$14,600	$15,000
Married filing jointly	$29,200	$30,000
Head of household	$21,900	$22,500

It’s important to understand the difference between itemized and standard deductions because one may offer more value to you than the other. 

Itemizing could make sense if the total value of your itemized deductions exceeds the standard deduction for your filing status. But if your only itemized expense is your HELOC interest, you could be better off sticking with the standard deduction. 

For those who do itemize, the tax savings can be meaningful, potentially several thousand dollars in federal and possibly state income taxes, depending on the interest paid and their tax bracket. The savings will either reduce their out-of-pocket tax payment or increase their refund, which can be put into savings or investments.

Using a standard vs. itemized tax deduction calculator can help you see which one might make more sense. You could also talk to a certified public accountant (CPA) or another tax expert to find other expenses you might be able to itemize. 

My recommendation for tracking expenses depends on the client’s preferences and their current system. I typically suggest starting with an expense tracking app and setting aside 30 minutes at the end of each month to review and properly categorize expenses. Clients can choose from various software options or stick with a traditional Excel spreadsheet if they prefer a more manual approach. 

Where to get home equity line of credit tax advantages 

If you’re thinking about using a HELOC to improve your home, you don’t want to let any potential tax advantages go to waste. Before you apply, consider the following:

• How much you need to borrow
• How you plan to use the money
• Whether you’d get any benefit from itemizing to deduct home equity loan or HELOC interest

Again, if your standard deduction amount is higher, asking when you can deduct HELOC interest might be a moot point. 

It’s also worth your while to shop around and compare loan rates and terms. We recommend the LendingTree marketplace for comparison shopping for HELOCs. Figure also offers a fixed-rate HELOC with the option to redraw up to 100% of your funds—a helpful benefit when you’re making major home improvements and need continued access to cash.

Take a look at our recommendations for the best HELOCs to see which lenders come out on top.