Home equity loan interest is deductible only if you use the loan proceeds to buy, build, or substantially improve your home

The IRS allows you to deduct interest on a home equity loan or line of credit, but only under one condition: the borrowed money must go toward your home itself. If you take out a home equity loan to pay off credit cards, fund a vacation, or buy a car, that interest is not deductible. The distinction matters because it determines whether you can claim the deduction at all.

The loan must also be secured by your primary residence or a second home. A home equity loan backed by your house qualifies; an unsecured personal loan does not, even if you use it for home improvements. The IRS looks at what secures the debt, not just what you spend the money on.

You must also itemize deductions on Schedule A to claim mortgage or home equity interest. If you take the standard deduction instead, you cannot deduct the interest, even if it otherwise qualifies. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly, so many homeowners find that itemizing does not benefit them.

Key Takeaways

  • Home equity loan interest is deductible only if the borrowed funds are used to buy, build, or substantially improve the home that secures the loan.
  • You must itemize deductions on Schedule A to claim the interest; taking the standard deduction means you cannot deduct it.
  • Interest on home equity debt used for other purposes—credit card payoff, vehicles, vacations—is never deductible.
  • The total mortgage debt (primary mortgage plus home equity loans) cannot exceed $750,000 for married filers or $375,000 for single filers to claim the full deduction.
  • You will need Form 1098 from your lender showing the interest paid, or you can calculate it yourself if the lender does not provide the form.

The $750,000 debt limit and how it affects your deduction

The Tax Cuts and Jobs Act of 2017 capped the amount of mortgage debt on which you can deduct interest. For married couples filing jointly, the limit is $750,000 of total mortgage debt. For single filers, it is $375,000. This limit applies to the combined balance of your primary mortgage and any home equity loans or lines of credit.

If your total mortgage debt exceeds the cap, you can still deduct interest on the portion within the limit. For example, if you are married and have a $500,000 primary mortgage and a $300,000 home equity loan (totaling $800,000), you can deduct interest only on $750,000 of that debt. The interest on the excess $50,000 is not deductible.

This limit does not change year to year, so if you refinanced before 2018 and your debt was under the old $1 million cap, you may still be grandfathered in at the higher amount—but only if you did not increase the loan balance after December 15, 2017. Refinancing for a lower rate or different term does not increase the balance, but taking out additional funds does.

What counts as a may have access to home improvement

The IRS defines a may have access to home improvement as work that adds value to your home, prolongs its useful life, or adapts it to a new use. Replacing a roof, adding a deck, installing new windows, or finishing a basement typically may have access to. Routine repairs and maintenance—painting, fixing a leak, replacing worn carpet—do not.

The line between improvement and repair can be blurry. Replacing one wall of siding is a repair; replacing all the siding is an improvement. Fixing a furnace is maintenance; replacing it with a new high-efficiency system is an improvement. When in doubt, keep receipts and documentation showing the scope of work, because the IRS may ask you to prove the improvement added value rather than straightforward maintained the home.

Energy-efficient upgrades—solar panels, heat pumps, insulation—often may have access to as improvements even if they do not add square footage. The same is true for accessibility modifications like ramps or widened doorways. If you are uncertain whether a specific project qualifies, a tax professional can review the details before you borrow.

How to document the interest and claim the deduction

Your lender will send you Form 1098, Mortgage Interest Statement, by January 31 each year. This form shows the total interest you paid on the loan during the year. You will need this form to claim the deduction on Schedule A. If your lender does not send Form 1098—which can happen with some private lenders or lines of credit—you can calculate the interest yourself using your loan statements and claim it anyway, though you should keep records in case the IRS asks.

On Schedule A, you will report mortgage interest and home equity interest together under "Interest You Paid." You can deduct interest from both your primary mortgage and your home equity loan on the same return, as long as the combined debt does not exceed the $750,000 limit and the proceeds were used for may have access to purposes.

If you paid off a home equity loan during the year, you can deduct the interest paid up to the payoff date. If you opened a new home equity line of credit and drew funds partway through the year, you deduct only the interest on the amount you actually borrowed, not the full credit limit.

When itemizing makes sense versus taking the standard deduction

Claiming home equity loan interest requires you to itemize deductions on Schedule A. You can only benefit from the deduction if your total itemized deductions exceed the standard deduction for your filing status. For 2024, that threshold is $14,600 for single filers and $29,200 for married couples filing jointly.

If you have a home equity loan with $8,000 in annual interest but no other deductions, itemizing would give you only $8,000 in deductions—less than the standard deduction. You would be better off taking the standard deduction and not claiming the interest. However, if you also have significant state and local tax deductions, charitable contributions, or medical expenses, the combination might push you over the threshold and make itemizing worthwhile.

Some homeowners use a strategy called bunching deductions to make itemizing pay off in alternating years. For example, if you are close to the itemization threshold, you might accelerate charitable donations or property tax payments into one year to exceed the standard deduction, then take the standard deduction in the following year. This approach can work with home equity interest as part of the mix, though it requires planning across multiple years.

Home equity lines of credit and variable interest rates

A home equity line of credit (HELOC) works differently from a fixed-rate home equity loan. With a HELOC, you draw funds as needed and pay interest only on the amount you have borrowed. The interest rate is often variable, meaning it changes with market conditions. You can still deduct the interest, but only on amounts drawn for may have access to home improvements.

If you have a $50,000 HELOC but have only drawn $20,000 to fund a kitchen renovation, you can deduct interest only on the $20,000. The unused credit line does not generate deductible interest. As you draw more funds for may have access to purposes, the deductible interest grows. If you draw funds for non-may have access to purposes—say, $10,000 to pay off a car loan—that portion of the interest is never deductible.

Variable rates mean your interest expense changes from year to year. In a rising-rate environment, your deductible interest may increase even if you do not borrow more. This can affect whether itemizing remains worthwhile, so it is worth recalculating your deduction annually if you have a HELOC.

Refinancing and cash-out scenarios

If you refinance your primary mortgage and take cash out, the interest on the new loan is deductible only on the portion that paid off the original mortgage. The cash-out portion is treated as a home equity loan, and interest on it is deductible only if you use those funds for a may have access to home improvement.

For example, if you refinance a $300,000 mortgage into a $400,000 loan and use the extra $100,000 to renovate your kitchen, the interest on the full $400,000 is deductible (assuming it is within the $750,000 cap). But if you use the $100,000 to pay off credit cards or buy a vehicle, interest on that $100,000 portion is not deductible, even though it is secured by your home.

This distinction is important because many homeowners assume that any money borrowed against their home is automatically deductible. It is not. The IRS tracks the use of the funds, not just the security behind the loan. Keep documentation of how you spent the cash-out proceeds—invoices from contractors, receipts, bank transfers—to support the deduction if questioned.

Frequently Asked Questions

Can I deduct home equity loan interest if I use the money to pay off credit card debt?

No. The interest is deductible only if you use the borrowed funds to buy, build, or substantially improve your home. Using a home equity loan to consolidate credit card debt makes the interest non-deductible, even though the loan is secured by your house. The IRS looks at the use of the money, not the security behind it.

What if I borrowed money for a home improvement but the project is not finished yet?

You can deduct the interest as long as the funds were borrowed for a may have access to purpose, regardless of when the work is completed. If you borrowed $50,000 in 2024 for a renovation that will not finish until 2025, you can deduct the 2024 interest. Keep records showing the loan was taken out for the improvement to support your position.

Do I need to report the home equity loan on my tax return if I do not itemize?

No. If you take the standard deduction, you do not report the home equity loan or claim any interest deduction. The loan itself is not taxable income, and you have no tax reporting requirement for it. You only report the interest if you itemize deductions on Schedule A.

Can I deduct interest on a home equity loan used to buy a rental property?

No. The loan must be secured by your primary residence or a second home you own, and the funds must be used to improve that same home. A home equity loan secured by your primary residence but used to purchase a rental property does not may have access to. Interest on rental property debt is handled differently and may be deductible as a rental expense, but that is a separate calculation.

What happens if my home value drops below the loan balance?

Being underwater on your home does not affect the deductibility of home equity loan interest. As long as the loan is secured by your home and the funds were used for a may have access to purpose, the interest remains deductible. The value of the home and the amount owed are separate from the tax treatment of the interest.