A home equity line of credit (HELOC) is a revolving line of credit that lets you borrow against the equity in your home. Just like with your primary mortgage, you’ll pay interest on a HELOC — and that interest can add up to a hefty sum over the years.
The good news is that homeowners who itemize deductions on their tax returns can typically deduct mortgage interest. Interest on a home equity line of credit tax is also deductible, but there are limits. Here’s what you need to know.
Learn more: What is a home equity line of credit, and how does a HELOC work?
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The short answer is yes, HELOC interest is deductible. According to the IRS, HELOC interest could be tax deductible if you use the money you receive to “buy, build, or substantially improve” your home. If you use the funds for other purposes — for example, paying off credit card debt or medical bills — the interest won’t qualify for a deduction.
Read more: How the mortgage interest tax deduction works
The rules for HELOC interest tax deductions changed after the Tax Cuts and Jobs Act (TCJA) passed in late 2017.
If you took out a HELOC on or before Dec. 15, 2017, you could file deductions on interest paid on up to $1 million of your home loan debt ($500,000 if you’re married and filing separately) regardless of how you use the funds. Your HELOC (whether issued before or after TCJA was signed into law) must be secured by your primary or second home to qualify for interest deductions.
The TCJA tightened those limits. So if you took out a HELOC after Dec. 15, 2017, you could deduct interest paid on up to $750,000 of qualified loans ($375,000 if you’re married and filing separately), and only if you used the money to buy, build, or improve your property. These limits apply to your combined residential debt, including first mortgages, home equity loans, and HELOCs.
So let’s say you’ve borrowed more than the TCJA limit — for example, you bought a house in 2019 with a $700,000 mortgage and borrowed $100,000 with a HELOC in 2022 to make significant home improvements. Your combined total mortgage balance is $800,000, so you cannot claim all interest paid. However, you should still be able to deduct interest paid on the first $750,000.
Note that these rules set by the TCJA are set to expire on Dec. 31, 2025, if Congress doesn’t pass new legislation. This means interest deduction limits could revert to their pre-TCJA levels in 2026.
Read more: Are closing costs tax deductible?
Here’s what you should do if you plan to claim the home equity line of credit interest tax deduction.
First, make sure your HELOC qualifies for interest tax deduction. As mentioned, things like the total amount of your home debt, what you’re using the HELOC for, and when you opened the line of credit would all factor into whether you’re eligible for a deduction. Review the guidelines above or talk to a tax professional to ensure you’re in the clear.
Taxpayers must itemize their deductions to claim the HELOC interest tax deduction — you can’t deduct HELOC interest if you opt for the standardized tax deduction.
If the total of your itemized deductions is lower than your standard deduction, it wouldn’t be worth your time and effort to itemize. But, if the total of your itemized deductions is higher than your standard deduction, you’ll want to use Form 1040, Schedule A, to itemize them.
For the 2024 tax year (which you will file in 2025), the standard deductions are the following:
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Single filers and married couples filing separately: $14,600
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Heads of household: $21,900
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Married couples filing jointly: $29,200
Dig deeper: Standardized deduction vs. itemized — How to decide which is better
3. Gather your documents and receipts
Having the proper documents makes it easier to report your HELOC deduction accurately — and they’ll also be necessary should the IRS ever audit you. Make sure you’ve got your Form 1098 that details the mortgage interest you’ve paid over the year, Form 1040 for itemizing your deductions, and any relevant receipts or bank statements handy. The IRS recommends keeping your tax documents and records for at least two years from the date you paid the tax or three years from filing your tax return, whichever is later.
Learn more: 8 tax deductions for homeowners
Your HELOC rates depend on economic and personal factors, such as your credit score debt-to-income ratio (DTI). They’re typically a bit higher than interest rates on first mortgages. However, your interest payments could fluctuate because many HELOCs come with variable interest rates.
If you took out a HELOC after Dec. 15, 2017, you could deduct interest paid on up to $750,000 qualified mortgage debt ($375,000 if married filing separately.) For HELOCs taken out on or before Dec. 15, 2017, you’re eligible for interest deductions on up to $1 million of your qualified debt ($500,000 if married filing separately).
Yes, you can use your home equity line of credit funds to pay taxes. However, your HELOC interest will not be tax deductible in this case since you’re not using the money to buy, build, or improve your property.
This article was edited by Laura Grace Tarpley.
