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Is Home Equity Loan Interest Tax Deductible?

Tax time is hard, but there’s some good news: If you used a home equity loan for home renovations or improvements, you’re in for a deduction.

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As tax season kicks into full gear, you’re probably thinking about when your tax return is due (April 15), what your tax filing status might be (a tax professional can help with that) and whether you should take a standard or itemized deduction. 

And if you’re paying back a home equity loan or a HELOC, you might have another question: Can you deduct the interest? The answer is yes – as long as the funds were spent on home improvements or renovations. There are some nuances, though. Read on for what you need to know about qualifying to deduct the interest from a home equity loan or home equity line of credit on your taxes this year.

What to know about home equity loans

Home equity

Your home equity is the difference between what you still owe on your mortgage and the current value of your home. So, if you have $200,000 left to pay off your mortgage and the home is worth $500,000, you have $300,000 of equity. Expressed as a percentage, you own 60% of your home, or have 60% equity.

Home equity loan

A home equity loan is also known as a second mortgage on your house. A home equity loan comes in one lump sum of money, and you’ll pay a fixed interest rate as you repay the loan in monthly installments. Most lenders will let you borrow up to 80 to 85% of the home’s value. Home equity loans are secured by your property. If you can’t pay back your loan, your lender can repossess your home to cover the debt you owe. 

Home equity line of credit

Commonly shortened to “HELOC,” a home equity line of credit is a line of credit you can draw from on an as-needed basis. The interest rate is variable, so your payments can fluctuate. HELOCs have draw periods, during which it’s common to only pay the interest, before the official repayment period kicks in. A home equity line of credit also uses your property as collateral for the loan.

Home equity loan interest

Repaying a home equity loan is similar to paying off your primary mortgage. Part of your payment will go toward the principal, and the other part will go toward the interest. At the beginning of the repayment period, most of your payments are interest. For example, if you take out a $50,000 home equity loan today with a 9% interest rate, your first year of payments will include more than $4,368 of interest payments – higher than the $3,231 of payments that will be applied to the principal. 

Home equity loan tax deduction 

Homeowners can use home equity loans or HELOCs for various expenses, but many put them toward home repairs and improvements, increasing the home’s value. If you use a home equity loan or HELOC for those reasons, you can deduct interest paid, saving you thousands of dollars over the lifetime of your loan. There’s less incentive to use a home equity loan for other purposes because those tax benefits won’t apply.

Is home equity loan interest tax deductible? Is HELOC interest tax deductible? 

According to the Internal Revenue Service, interest on a home equity loan or home equity line of credit is deductible if the borrowed funds are used for home improvements, upgrades or renovations. So, if you want to borrow against your equity to pay for other kinds of life expenses, you’ll be on the hook for paying back your loan interest. 

The IRS states that interest on your first and second mortgages is tax deductible if the money is used to “buy, build or substantially improve your home.” The mortgage – which can include a home equity loan or a HELOC – must be taken out on your primary residence (or secondary residence) and needs to be either a “house, condominium, cooperative, mobile home, house trailer, boat or similar property that has sleeping, cooking and toilet facilities,” the IRS says. If you have additional investment properties, whether you can deduct the interest will depend on what business purpose it serves.  

Tax-deductible expenses from home equity loans

Interest on a home equity loan is deductible only if the borrowed funds create what the IRS deems a “substantial improvement,” which includes anything that adds value, prolongs the property’s life or adapts it to a new use. Those funds can be used to pay for a wide range of expenses, such as:

  • Labor (paying your contractor and workers)
  • Supplies
  • Building permits
  • Design plans

There are some additional considerations, too. For example, regular maintenance such as lawn care or painting a few rooms as part of your upkeep are not qualified expenses. However, if you’re redoing your lawn with a deck and installing new trees or you’re repainting the home as part of a bigger project, interest on those expenses is tax deductible. 

It’s important to note that if your loan closed before the beginning of 2018, you can deduct interest regardless of what you used the money to cover. According to the IRS, you may still qualify for the deduction if you used the money for personal living expenses or for consolidating credit card debt. The 2018 date is a big marker regarding what qualifies and how much. 

How to know if you qualify for a home equity loan tax deduction

To determine whether or not your home equity loan will qualify for the deduction, use the IRS Interactive Tax Assistant by inputting some basic information about your mortgage.

How much home equity loan interest is tax deductible?

The determining factors for how much of your loan you can deduct the interest on is based on whether you took out your loan before or after 2018, how much money you borrowed and what you’re using the funds for.

Whether you file your taxes jointly or individually impacts how much of your home equity loan interest you can deduct. When the Tax Cuts and Jobs Act of 2017 was enacted on Jan. 1, 2018, it changed the loan limits for home equity deductions, with different thresholds for married couples filing jointly and married couples filing separately.

If you took out your home equity loan after Dec. 15, 2017, joint filers can deduct interest of up to $750,000 ($375,000 for single filers). If, however, your loan closed before that date, your limits will be higher, with joint filers deducting interest on up to $1 million and single filers up to $500,000 worth of loans.

Filing statusWhen the home equity loan closedThe amount of debt you can deduct interest on
Filing jointlyAfter Dec. 15, 2017Up to $750,000
Filing jointlyBefore Dec. 15, 2017Up to $1 million
Filing separatelyAfter Dec. 15, 2017Up to $375,000
Filing separatelyBefore Dec. 15, 2017Up to $500,000

How to claim home equity tax deductions 

To qualify for the tax deduction, you must opt for itemized deductions rather than taking the standard deduction. In most cases, it’s easier to work with a tax advisor or accountant who’s knowledgeable on the most recent tax deduction rules and regulations to claim your deduction. 

1. Know where you stand with your mortgages

You’ll want to make sure your total mortgage debt (from your first mortgage and your home equity loan, or second mortgage) meets IRS requirements and doesn’t exceed $750,000 or $1 million for married couples filing jointly, or $375,000 or $500,000 for single filers, depending on whether you took out your loan before or after 2018. You also need to make sure that you’re borrowing against a qualified property, and that the home equity funds were used to increase the value of your property through renovations or upgrades.

2. Compile your documents

You’ll need to fill out Form 1098, which should be provided to you by your lender, and gather proof of how you spent your loan funds to show the IRS you completed substantial renovations on your home. Keep track of items such as receipts and bills from contractors so you can claim your interest deduction. 

3. Itemize your deductions

To qualify for the home equity loan interest tax deduction, you must take itemized deductions instead of the standard deduction. If you don’t have an accountant to file your taxes, you’ll need to make sure you file all of the proper IRS forms on your own. For example, in addition to Form 1098, you may need to file Form 1040 or 1040-SR to itemize your deductions.

The bottom line

The interest on a home equity loan or a HELOC is only tax deductible if you use the money for home repairs or renovations. That’s why using a home equity loan or HELOC specifically for home improvements is advantageous -- you receive tax benefits that aren’t available when you use the money for other purposes. To claim the home equity loan interest deduction, be prepared to itemize your taxes and provide proof of how you used the funds through receipts and invoices from contractors or builders.


No. You should only apply for a home equity loan or HELOC if you actually need a loan and it’s the best way to finance your expenses. If you’re not using the loan for home improvements, you won’t qualify to deduct the interest, anyway.

The only expenses applicable to deducting HELOC interest are when you use it to “buy, build, or substantially improve” the home that secures the loan, according to the IRS. You can’t deduct your loan interest if you use your loan to start a business, for example.

Alix is a former CNET Money staff writer. She also previously reported on retirement and investing for and was a staff writer at Time magazine. Her work has also appeared in various publications, such as Fortune, InStyle and Travel + Leisure, and she also worked in social media and digital production at NBC Nightly News with Lester Holt and NY1. She graduated from the Craig Newmark Graduate School of Journalism at CUNY and Villanova University. When not checking Twitter, Alix likes to hike, play tennis and watch her neighbors' dogs. Now based out of Los Angeles, Alix doesn't miss the New York City subway one bit.
David McMillin writes about credit cards, mortgages, banking, taxes and travel. Based in Chicago, he writes with one objective in mind: Help readers figure out how to save more and stress less. He is also a musician, which means he has spent a lot of time worrying about money. He applies the lessons he's learned from that financial balancing act to offer practical advice for personal spending decisions.
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