Can You Deduct Home Equity Loan Interest on Your Taxes?
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For many homeowners, a home equity loan or line of credit (HELOC) is an attractive way to borrow money at relatively low rates. However, as tax laws have changed, deduction of the interest you pay from your taxable income is no longer as simple as it once was.
Interest on a home equity loan is now deductible only if the funds are used for specific purposes and only if you itemize deductions instead of taking the standard deduction.
What’s Different Now
Before the Tax Cuts and Jobs Act (“TCJA”), a home equity loan could be used for anything, such as a vacation, paying off credit cards, or even tuition, and the interest could still be deducted. However, the TCJA, which became permanent this year, restricts the interest deduction to loans used only for buying, building or improving the home that secures the loan.
Thus, if you use the loan to renovate your kitchen, add a bedroom or put on a new roof, the interest may still be deductible. But if you are using it to consolidate debt or pay for non-home expenses, you cannot claim a deduction.
Debt Limits You Need to Know
Even if the money is used for a qualified purpose, there are limits on the amount of debt for which you can deduct interest. For loans that have been taken after Dec. 15, 2017, the maximum combined mortgage debt you can claim is $750,000 for single or joint filers ($375,000 if married but filing separately).
If your mortgage was originated before Dec. 15, 2017, you may qualify for the older, higher limit, which is $1 million for joint filers and $500,000 for separate filers. These limits include both your first mortgage and your home equity loan combined.
You Must Itemize Deductions
Even if you meet all the requirements above, you only benefit if you itemize your deductions. Many taxpayers now take the standard deduction because the TCJA nearly doubled its size. For 2025, the standard deduction is $31,500 for joint filers, $15,750 for single filers, and $23,625 for heads of household.
If your total itemized deductions — mortgage interest, property taxes, charitable donations, and others — do not exceed those amounts, it may not make sense to itemize just to claim your home equity loan interest.
How to Claim the Deduction
If you determine that itemizing is worthwhile, make sure you have the right paperwork in order:
• Form 1098: Your lender will send you a mortgage interest statement showing the amount of interest you paid.
• Receipts or invoices: Keep proof that the money was used for qualifying home improvements. This includes construction contracts, materials, labor costs, and permits.
• Additional statements: If you paid more interest than what appears on Form 1098, you will need to include a statement explaining the discrepancy.
When You Are Better Off Taking the Standard Deduction
Let us take an example. If you paid $9,100 in mortgage interest and $2,600 in home equity loan interest in 2025, it adds up to $11,700, which is far below the $31,500 standard deduction for joint filers. In that case, itemizing would actually increase your taxable income, so you are better off taking the standard deduction and skipping the home equity interest deduction altogether.
Bottom Line
Home equity loans can still offer a tax benefit, but the rules are much stricter than they were before 2017. So, if you are considering taking out a home equity loan or line of credit, factor in whether you will actually get a tax benefit. Otherwise, you might be paying interest without the deduction you were counting on.