HELOC Interest: When Might It Be Deductible?

Interest on a HELOC is not automatically deductible. For the federal home mortgage interest deduction, the use of funds, the property securing the debt, the amount and timing of your mortgages, and whether you itemize can all matter. This is general information, not tax advice.

Start with the use of the money

According to IRS Publication 936, interest on a home equity loan or line may qualify for the home mortgage interest deduction when the borrowed funds are used to buy, build or substantially improve the taxpayer's home that secures the loan, provided other requirements are met. The securing property must be a qualified main or second home.

A substantial improvement generally adds to a home's value, prolongs its useful life, or adapts it to new uses. A major renovation, addition or roof replacement may qualify; routine repairs generally do not unless part of a larger improvement. Facts matter, so retain records and consult Publication 936 for details.

Itemizing and debt limits

The home mortgage interest deduction generally requires itemizing deductions on Schedule A. Even eligible interest may not produce a tax benefit if taking the standard deduction is more advantageous. Check the instructions for the tax year in question.

Publication 936's 2025 guidance generally applies a $750,000 limit on qualifying home acquisition debt for debt secured after December 15, 2017 ($375,000 if married filing separately), with different limits and exceptions for older or grandfathered debt. The limits apply to combined mortgages on the main and second homes, not simply to a HELOC or one property. Refinancing and mixed periods can complicate the calculation. The debt limit limits the portion of interest deductible; it does not prevent borrowing more.

For example, a homeowner with $700,000 of qualifying first-mortgage debt who adds a $100,000 HELOC for a substantial improvement could exceed the applicable debt limit. Do not assume the interest on a particular $50,000 slice of the HELOC is automatically the disallowed portion: the IRS worksheet uses average balances and other rules. Use Part II of Publication 936 and seek tax advice where needed.

Personal, mixed and other uses

Interest attributable to HELOC funds used for personal expenses such as credit cards, tuition, medical bills or a vacation generally does not qualify as home mortgage interest. Funds used to improve a different property do not meet the requirement to improve the home securing the loan. Some business or investment uses may be subject to different rules; do not assume they qualify for the home mortgage interest deduction or any other deduction.

If funds are used for more than one purpose, keep a record of each draw, its use and repayments. Interest allocation and tracing can be complex, particularly as balances change. An initial ratio of improvement spending to the draw is not necessarily the deductible percentage for every year. Ask a tax professional about the applicable rules instead of assuming repayments can be allocated to a preferred use.

Records to keep

Retain HELOC statements, invoices, receipts, bank records and, where applicable, permits. These can help show the date and use of funds and the interest paid. A Form 1098 can be a useful record, but receiving one does not by itself establish that all interest is deductible.

Before claiming a deduction

Check the IRS home mortgage interest guide and Schedule A instructions for the relevant tax year. State rules may differ. If you have mixed uses, multiple mortgages, a refinance, or investment or rental activity, consult a qualified tax professional about your facts.