Homeowners often turn to home equity loans as a cost-effective way to unlock their property’s value without high-interest borrowing. Whether you’re planning a major renovation or need to cover a large expense, using your home’s value as collateral can be a smart move. But many borrowers still ask one important question: Is home equity loan interest tax-deductible?
The answer isn’t always straightforward. While home equity loan tax deductions still exist, there are a few rules to follow, and not everyone qualifies.
What Makes a Home Equity Loan Tax-Deductible?
You won’t get a tax break on the loan amount itself, but the interest might qualify, if you follow the rules. The IRS gives the green light only when the money is used to buy, build, or make major upgrades to the same property that serves as collateral. That means repairs or upgrades to a rental property or second home wouldn’t qualify unless that specific home also secures the loan.
So, if you’re using the funds to remodel your kitchen, replace your HVAC system, or build a home office, the interest is likely deductible. But if you spend the money on paying off student loans, taking a vacation, or consolidating credit card debt, the deduction doesn’t apply.
Defining “Substantial Improvement”
Not every home project counts. Cosmetic repairs or general maintenance won’t make the cut. The IRS makes it clear, the project must enhance your home’s value, extend its life, or transform its use.
Some qualifying examples include:
- Building an addition
- Installing a new roof
- Resurfacing a driveway
- Replacing major systems like heating and plumbing
- Remodeling a kitchen or bathroom
On the other hand, repainting walls or fixing a leaky faucet wouldn’t qualify because they’re considered routine upkeep.
The Date You Took Out the Loan Matters
The home equity loan tax deduction rules changed after the Tax Cuts and Jobs Act of 2017. That law placed stricter limits on how much interest you can deduct and under what circumstances.
If your home equity loan was approved before December 15, 2017, you could deduct interest on up to $1 million in total home loan debt if filing jointly—or $500,000 if filing separately. Back then, it didn’t matter how you used the funds.
Things changed for loans taken after that date. The cap dropped to $750,000 for joint filers and $375,000 for separate returns. Plus, the deduction only applies if the money goes toward buying, building, or making major improvements to your home.
Also, these loan limits are combined with any existing mortgage debt. So if your primary mortgage is already $700,000 and you borrow $100,000 more through a home equity loan, only a portion of the interest might be deductible.
You Need to Itemize to Claim the Deduction
Even if your home equity loan interest qualifies, you won’t benefit unless you itemize deductions on your tax return. For many people, this is where the challenge begins.
The higher standard deduction, introduced in 2018, made itemizing less common for many taxpayers. For 2025, the amounts are $30,000 for joint filers, $15,000 for single filers and those married filing separately, and $22,500 for heads of household. If your combined deductions, like mortgage interest, state and local taxes, or donations, don’t go beyond those numbers, itemizing won’t offer any extra tax benefit.
For example, say you paid $9,000 in mortgage interest and $2,500 in home equity loan interest. If those are your only deductions, itemizing won’t make sense since they don’t surpass the standard deduction for your filing status.
What You Need to Support Your Claim
To claim a home equity loan tax deduction, keep proper records. First, your lender will send you Form 1098, which shows how much mortgage interest you paid during the year. This includes interest on both your first mortgage and any second mortgage, like a home equity loan.
You should also collect:
- Receipts or invoices for any home improvements
- Bank statements showing how the funds were spent
- A written explanation, if the reported interest doesn’t match your actual payments
Keep these documents in case the IRS asks for proof.
When It Makes Sense and When It Doesn’t
If you’re already planning a renovation and itemizing your deductions, a home equity loan can be a financially sound option. You may be able to borrow at a lower rate than with personal loans or credit cards and get a tax break on the interest.
But if your expenses don’t qualify, or if you’re not itemizing deductions, the tax benefit disappears. In that case, consider other loan options or use your savings instead.
Don’t Let the Tax Deduction Be the Only Reason You Borrow
Chasing a tax deduction shouldn’t be your main reason for taking out a home equity loan. While saving on taxes is a bonus, the real value comes from using the funds to make meaningful improvements to your home.
Focus on how the loan fits into your financial goals, not just what you can write off in April. Tax rules change, but good money habits stand the test of time.