Is HELOC Interest Tax-Deductible?

It all depends on how you use the money

Accountant planning with clients in office

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A home equity line of credit (HELOC) is a common way for homeowners to borrow money at affordable rates by tapping into their home equity. It works similarly to a credit card in that you have a line of credit you're free to draw from as needed and you only owe interest when you borrow. 

You used to hear people talking more about the benefits of HELOCs because you once were able to deduct all of the interest paid on these loans, unlike many other loan options. But with changes made in 2018, that may not be the case anymore. Instead, what you use the funds for and the size of your loan are among the determining factors. We'll help you understand how it all works.  

Key Takeaways

  • You can only deduct interest from a home equity line of credit (HELOC) that you use to pay for home repairs and upgrades. 
  • You can only deduct interest on up to $750,00 in combined mortgages, home equity loans, and HELOCs ($350,000 if you're married and filing separately). 
  • You can't deduct interest from a HELOC if you use the funds to pay for another property, such as to buy a rental home or repair your vacation home. 
  • You must itemize your deductions in order to claim a deduction for HELOC interest. 

HELOCs Follow Mortgage Interest Deduction Rules

If you own a home, you're familiar with mortgages, but did you know the IRS classifies HELOCs as a type of mortgage too? That's because it's secured by your home—i.e., if you default on the loan, your lender can foreclose on your home to recoup their payment back. 

When it comes to deducting mortgage interest, however, the IRS does distinguish between mortgages made for acquiring a home (i.e., "normal" or "first" mortgages) and mortgages that are merely secured by your home (i.e., "second mortgages" like HELOCs and home equity loans).

The reason for this distinction is that first mortgages are generally used only for buying a home, which is something the government wants to incentivize. Second mortgages, on the other hand, can be used for almost anything, some of which the government wants to incentivize and some of which it doesn't. 

When Is HELOC Interest Deductible?

Interest that you pay on your HELOC is only tax-deductible if you use it for one category: home repairs and improvements. Technically speaking, the IRS defines this as "when you use the proceeds to buy, build, or substantially improve your home." This could include such things as:

  • Repairing an aging roof
  • Building a new home addition
  • Installing a solar energy system
  • Adding a mother-in-law apartment

If you use your HELOC for anything else, including common things like paying for your child’s education school or even debt consolidation, then you won't be able to deduct the interest on your HELOC.

Limits to HELOC Interest Deductions

So, you're planning on using your HELOC funds to renovate your home. That's a great use of a HELOC. But before you get started, you should be aware of some other IRS limits in place for deducting HELOC interest.

You Can Only Deduct a Certain Amount

Under IRS rules, you can only deduct the interest from mortgages up to $750,000 (or $375,000 if you're married and filing separately). This is a combined limit for your mortgage and your HELOC together.

So, for example, if you already have a mortgage with a balance of $750,000 or more, you won't be able to deduct any interest from your HELOC, regardless of what you spend the funds on. But if you have a mortgage balance of $500,000, you'd be able to deduct the interest from any HELOCs you take out up to a limit of $250,000.

You're also only allowed to deduct interest from mortgages up to your home's value. So if your home is only worth $200,000, for example, you won't be able to deduct interest paid on anything above that, even if you owe $250,000 combined between your mortgage and HELOC.

You Must Own the Home

In addition, you must own the home that the funds are being used to upgrade. You can't take out a HELOC on your own home and deduct the interest if you use the money to pay for someone else's home repairs, for example. 

In order to be able to deduct the interest, you also have to use the funds to pay for the same home that's being used to secure the loan. If you own multiple homes, for example, you can't take out a HELOC on your main home and use it to pay for work on a vacation home and still be able to deduct that interest.

You Must Itemize Deductions

Finally, here's the kicker: in order to deduct any mortgage interest at all, you need to itemize your deductions. Due to the Tax Cuts & Jobs Act, which raised the standard deduction, many people find it easier and more beneficial to use the standard deduction versus itemize deductions.

You'd need a significant amount of itemized deductions to come out ahead by opting for this option. If you don't, then your mortgage interest deduction would not be worth it.

How To Claim the HELOC Interest Deduction

At the end of the year, you should receive a Form 1098 from each of your mortgage and HELOC lenders stating how much you paid in interest that year. You can use this to figure out how much to report on Schedule A and your list of itemized deductions. If you're not sure how to report it, you can use "Table 1. Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest for the Current Year" in IRS Publication 936.


Your lender will send you a Form 1098 for any interest you paid on your HELOC, but you can only deduct interest for money that you used to pay for home upgrades. It's a good idea to keep these receipts in case you're audited in the future. 

Frequently Asked Questions (FAQs)

Is HELOC interest still tax-deductible when I’m done paying off my mortgage?

Yes. The IRS lumps HELOCs and mortgages together when it comes to determining whether you're able to deduct the interest from these loans. If you've paid off your mortgage, then you're still able to deduct your HELOC interest as long as you meet the other requirements, such as only using the funds for home upgrades. 

How often can the interest rate change on a HELOC?

It depends on the terms of your loan agreement. But generally, the interest rate on most HELOCs can change every month.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. “Publication 936 (2021), Home Mortgage Interest Deduction."

  2. IRS. “​​Interest on Home Equity Loans Often Still Deductible Under New Law.”

  3. IRS. “Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses).”

  4. Tax Policy Center. “How Did the TCJA Change the Standard Deduction and Itemized Deductions?

  5. Office of the Comptroller of the Currency. “The Bank Increased the Rate on my Variable Rate Home Equity Line of Credit (HELOC) Without Providing Any Notice.”

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