Are Home Equity Loan Closing Costs Tax Deductible?
Last updated 10/01/2025 by
Ante MazalinEdited by
Andrew LathamSummary:
Most home equity loan (HEL) closing costs—like appraisal, title, recording, and lender fees—are not tax deductible. However, interest on a HEL may be deductible if the loan is used to “buy, build, or substantially improve” the home that secures the loan, subject to IRS limits and itemizing rules. Always keep receipts that show how the funds were used.
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What Counts as “Closing Costs” on a HEL?
Typical one-time fees you’ll see at closing include:
- Appraisal (valuation), credit report, title search/insurance, recording, and attorney/settlement fees
- Origination/underwriting and administrative charges
- Discount points (rare on HELs, but possible)
Related: Closing Costs on Home Equity Loans
Are HEL Closing Costs Tax Deductible?
Short answer: generally no.
- Not deductible: Appraisal, title, attorney, recording, credit report, origination, underwriting, processing, and most other lender/third-party fees.
- Mortgage interest: Potentially deductible if funds are used to buy, build, or substantially improve the home securing the loan and you itemize deductions. Subject to IRS debt limits and other rules—see IRS Publication 936.
- Real estate taxes paid at closing: May be deductible as state/local taxes (subject to SALT limits) if they are your taxes, not the seller’s.
Related: Home Equity Loan Interest Rates
What About Points on a Home Equity Loan?
Discount points (if any) on a HEL are usually not deductible in full in the year paid. For refinances and second mortgages, the IRS typically requires amortizing points over the life of the loan. There are limited exceptions (for example, points paid on a loan used solely to improve your main home and other IRS conditions are met). Always confirm with a tax professional.
Can Closing Costs Increase My Home’s Tax Basis?
Closing costs to purchase a property can increase basis. However, for a HEL or refinance, most settlement charges do not increase basis. The cost of actual improvements (materials, contractor labor, permits) does increase basis and should be tracked with receipts.
Examples: What You Can & Can’t Deduct
| Item | Deductible? | Notes |
|---|---|---|
| Appraisal, title, recording, origination | No | Closing costs on a HEL are generally not deductible |
| HEL interest | Maybe | Only if funds are used to buy/build/substantially improve the home securing the loan and you itemize |
| Points (discount) | Maybe | Often amortized; limited cases may allow current deduction when used solely for improving main home |
| Property taxes paid at closing | Maybe | May count toward SALT deduction limits if they’re your taxes |
| Contractor invoices/materials for remodel | No (as a deduction) | Not deductible as an expense, but can increase basis for capital gains purposes |
Documentation You Should Keep
- Loan documents & closing disclosure showing fees and amounts financed
- Invoices/receipts for qualified improvements (materials, contractor payments, permits)
- Property tax statements if taxes were paid or adjusted at closing
Tip: Keep a folder (digital or physical) labeled “Home Improvements & Loans” with dates, amounts, and proof of payment.
FAQs
Do I have to itemize to deduct HEL interest?
Yes. Mortgage interest deductions require itemizing; if your standard deduction is higher, itemizing may not benefit you.
Is interest deductible if I used the funds to pay off credit cards?
No. HEL interest used for personal expenses (like debt consolidation) isn’t deductible under IRS rules; the interest must tie to buying, building, or substantially improving the home that secures the loan.
Is there a loan size limit?
Yes. The IRS caps the amount of mortgage debt eligible for the interest deduction. See IRS Publication 936 for current thresholds and details.
Related Home Equity Loan Articles
- Home Equity Loan Interest & Taxes – Understand when interest may be deductible.
- Closing Costs on Home Equity Loans – Typical totals and how to save.
- How to Qualify for a Home Equity Loan – Credit, DTI, equity, and documentation.
- How Much Home Equity Do You Need for a Loan? – CLTV targets and examples.
- Risks of a Home Equity Loan – Key pitfalls and how to avoid them.
Key Takeaways
- Most HEL closing costs (appraisal, title, recording, origination) are not tax deductible.
- HEL interest may be deductible only if the money is used to buy, build, or substantially improve the home securing the loan—and you itemize.
- Points on a HEL are often amortized over the loan term; special rules apply for improvements on your main home.
- Keep detailed records of how you use HEL funds and all improvement invoices.
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Bottom Line
Plan on HEL closing costs being nondeductible—and focus your tax strategy on whether your interest qualifies based on how you use the funds. Track improvement receipts, confirm current IRS rules, and consult a tax pro for your specific situation.
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