Can You Deduct Home Equity Loan Interest?
For many homeowners, one of the biggest selling points of a home equity loan or line of credit (HELOC) is the potential tax benefit. But those benefits are not automatic. Whether you can deduct the interest depends on how you use the loan, when you borrowed it, and whether you itemize your deductions instead of taking the standard deduction.
The rules changed dramatically with the 2017 Tax Cuts and Jobs Act (TCJA), and the latest tax bill signed into law in July 2025 has made those changes permanent. Before 2017, homeowners could deduct the interest on home equity loans regardless of how the money was spent — whether for home renovations, vacations, or paying down credit card balances. Now, the rules are much stricter: the loan must be used to buy, build, or substantially improve the property that secures the loan.
In other words, you can’t deduct the interest on a home equity loan used for debt consolidation, tuition, or travel. You also can’t use a loan secured by your primary residence to renovate a vacation home and still claim the deduction. The IRS requires a direct connection between the funds borrowed and the property itself.
The amount you can deduct also depends on when the loan originated. For loans taken after December 15, 2017, interest is deductible on combined mortgage and home equity debt up to $750,000 for joint filers or $375,000 for single filers. If the loan was taken before that date, the higher limits of $1 million for joint filers and $500,000 for singles still apply. Importantly, these limits include your first mortgage balance as well as your home equity loan. So if you already owe $700,000 on a mortgage, only $50,000 of home equity debt would qualify for interest deductions under the $750,000 cap.
To illustrate, consider two scenarios. If you borrowed $200,000 in 2022 and split it between paying off credit cards and building a new home office, only the portion spent on the renovation would qualify. Or suppose you had a $700,000 mortgage balance in 2025 and then took out a $100,000 HELOC to update your kitchen. Because the combined debt is $800,000 — above the $750,000 cap — only part of the HELOC interest would be deductible.
Even if your loan qualifies, you can only take advantage of this tax break if you itemize deductions on your return. That means your combined deductions — mortgage and home equity interest, charitable contributions, medical expenses, and others — must exceed the standard deduction. With the standard deduction now set at $31,500 for joint filers in 2025, many households will find it makes more sense to take the standard deduction rather than itemize just for home loan interest.
For those who do qualify, good record-keeping is essential. You’ll need Form 1098 from your lender showing interest paid, plus documentation proving how the loan proceeds were used. Receipts, invoices, and permits for major home projects should all be kept in case the IRS ever asks for verification.
The bottom line: a home equity loan can still carry tax benefits, but only under specific conditions. The interest is deductible if — and only if — the funds are used to substantially improve the property that secures the loan, and if itemizing deductions gives you a bigger benefit than the standard deduction. For many homeowners, the deduction won’t apply, but for those undertaking major renovations, it could provide a valuable way to offset costs.