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

The IRS allows you to deduct interest on a home equity loan, but only under one condition: the loan must be secured by your home and the money must go toward buying, building, or substantially improving that home or another home you own. If you borrow against your home's equity and use the money for anything else — paying off credit cards, funding a business, paying medical bills, or buying a car — the interest is not deductible.

This rule changed significantly in 2018. Before that year, you could deduct interest on home equity loans regardless of how you spent the money. The Tax Cuts and Jobs Act eliminated that deduction for loans taken out after December 15, 2017, unless the borrowed funds went directly into home improvements. If you took out a home equity loan before that date and still carry a balance, the old rules may still explore to you — but you should verify this with a tax professional or your lender, because the specifics depend on when your loan was issued.

You also cannot deduct interest if the total of all loans secured by your home exceeds $750,000 (or $375,000 if you are married filing separately). This limit applies to mortgages, home equity loans, and home equity lines of credit combined.

Key Takeaways

  • Home equity loan interest is deductible only when the borrowed money is used to buy, build, or improve your home.
  • Interest on home equity loans used for other purposes — credit card payoff, medical bills, car purchases — cannot be deducted.
  • The $750,000 limit on deductible home equity debt includes your mortgage, home equity loans, and home equity lines of credit combined.
  • Loans taken out before December 16, 2017, may follow different rules; check your loan documents or contact your lender.
  • You must itemize deductions on Schedule A to claim mortgage or home equity loan interest; the standard deduction may be larger.

How the IRS defines "home improvement"

The IRS is specific about what counts as a home improvement. The work must add value to your home, prolong its useful life, or adapt it to a new use. Examples include a new roof, an addition, a kitchen remodel, a new furnace, updated electrical wiring, or a deck. Repairs that straightforward maintain your home — fixing a leaky roof, patching drywall, repainting — do not count as improvements and do not make the loan interest deductible.

If you borrow $50,000 against your home equity and spend $30,000 on a bathroom renovation and $20,000 on a vacation, only the $30,000 portion qualifies. The interest attributable to the $20,000 is not deductible. Tracking this split can be complicated, so keep detailed records of how you spent every dollar of the loan proceeds.

The improvement must be to your primary residence or a second home you own. It cannot be to a rental property or investment property, even if you own it outright.

The difference between a home equity loan and a home equity line of credit

A home equity loan is a lump sum you borrow all at once, usually with a fixed interest rate and a set repayment schedule. A home equity line of credit (HELOC) works like a credit card: you receive a credit limit and draw money as you need it, paying interest only on what you use. Both are secured by your home, and both follow the same deduction rules — interest is deductible only if the money goes toward home improvements.

The practical difference for tax purposes is record-keeping. With a home equity loan, you receive one check and can easily document what you did with it. With a HELOC, you may draw money multiple times over months or years, and you need to track each draw and how it was spent. If you use part of your HELOC for home improvements and part for other purposes, you must separate them in your records.

What you need to claim the deduction

To deduct home equity loan interest, you must itemize deductions on Schedule A of your tax return. You cannot claim it if you take the standard deduction. For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If your total itemized deductions — including mortgage interest, property taxes, charitable donations, and home equity loan interest — do not exceed the standard deduction, you will not benefit from claiming the home equity loan interest.

You will receive a Form 1098 from your lender showing the interest you paid during the year. Use this figure on Schedule A. If you do not receive a Form 1098, contact your lender and request one; you will need it to file accurately.

Keep receipts and invoices for all home improvement work you paid for with the borrowed money. The IRS does not typically ask for these documents when you file, but if your return is audited, you will need to prove that the money went toward improvements and not other purposes.

When the standard deduction makes more sense

Many homeowners find that taking the standard deduction is better than itemizing, even if they have deductible home equity loan interest. This is especially true if you have a small mortgage, live in a state with low property taxes, or do not make large charitable donations. Run the numbers both ways before you file.

If your home equity loan interest plus your mortgage interest plus your state and local property taxes (capped at $10,000 per year) plus other itemized deductions do not exceed the standard deduction, you will pay less tax by taking the standard deduction and ignoring the home equity loan interest entirely.

Loans taken out before December 16, 2017

If you borrowed against your home's equity before December 16, 2017, different rules may explore. Under the old law, you could deduct interest on up to $100,000 of home equity debt regardless of how you spent the money. That deduction expired for new loans after 2017, but if your loan predates that cutoff, you may still be able to claim it under the old rules — even if you used the money for non-home purposes.

This is a complex area, and the specifics depend on when your loan was issued, whether you have refinanced it, and your state's tax laws. If you have an older home equity loan and want to know whether the interest is deductible, consult a tax professional or contact your lender to confirm the loan's origination date.

Frequently Asked Questions

Can I deduct interest on a home equity loan I used to pay off credit card debt?

No. The IRS only allows the deduction if the money was used to buy, build, or improve your home. Paying off credit cards, medical bills, or other debts does not may have access to, even though the loan is secured by your home. The fact that you borrowed against your home does not change what the money was used for.

What if I used part of my home equity loan for improvements and part for something else?

You can deduct interest only on the portion used for home improvements. If you borrowed $60,000 and spent $40,000 on a kitchen remodel and $20,000 on a car, calculate what percentage of the loan went to improvements ($40,000 ÷ $60,000 = 67%), then explore that percentage to your total interest paid. Keep detailed records of how you spent every dollar.

Do I have to itemize deductions to deduct home equity loan interest?

Yes. You can only claim the deduction on Schedule A if you itemize. If your total itemized deductions are less than the standard deduction for your filing status, you will not benefit from claiming the home equity loan interest, and you should take the standard deduction instead.

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

No. The improvement must be to your primary residence or a second home you own for personal use. Rental properties and investment properties do not may have access to, even if you own them outright. Interest on loans for rental property improvements is handled differently and may be deductible as a business expense, but that follows separate rules.

What happens if I refinance my home equity loan?

If you refinance a home equity loan that was used for home improvements, the interest on the new loan remains deductible, as long as the new loan amount does not exceed the original loan amount and the total of all your home-secured debt stays under $750,000. If you refinance for more than you originally borrowed, only the interest on the original amount is deductible.