Are Home Equity Loans Tax Deductible In 2026?
Last updated 05/13/2026 by
Ante Mazalin
Edited by
Andrew Latham
Summary:
Home equity loan and HELOC interest is tax-deductible, but only when the borrowed funds are used to buy, build, or substantially improve the home that secures the loan.
Interest on the same loan used for any other purpose, debt consolidation, a car purchase, or personal expenses, is not deductible under any provision of current law.
- Qualifying use (home improvement): Interest is deductible as home mortgage interest on Schedule A under IRC Section 163(h) and IRS Publication 936, subject to the $750,000 combined debt limit for loans taken after December 15, 2017.
- Non-qualifying use (personal expenses): Interest on home equity debt used for anything other than buying, building, or substantially improving the home is not deductible, regardless of how the loan is secured.
- Pre-2018 debt: Interest on home equity loans taken out before December 16, 2017, remains subject to the older $1,000,000 combined debt limit ($500,000 married filing separately).
- Standard deduction takers: No federal tax benefit is available. The home mortgage interest deduction requires itemizing on Schedule A.
Home equity borrowing is often pitched as a tax-smart way to fund renovations or consolidate debt. The renovation part can be correct, but the debt consolidation part is not.
The IRS draws a hard line based on what the money is actually used for, not how the loan is structured.
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Are home equity loans tax deductible? Only when the proceeds improve the home that secures the loan
Yes, home equity loan and HELOC interest is deductible, but only for the portion of the loan used to buy, build, or substantially improve the qualified home that secures it.
According to IRS Publication 936, you can no longer deduct the interest from a loan secured by your home to the extent the loan proceeds were not used to buy, build, or substantially improve your home. This rule applies regardless of when the debt was incurred. The One Big Beautiful Bill Act made this use-of-proceeds requirement permanent beginning in 2026.
Interest on qualifying home equity debt is deductible as home mortgage interest on Schedule A (Form 1040), Line 8a, subject to the combined debt limit of $750,000 for loans taken after December 15, 2017 ($375,000 if married filing separately). The $1,000,000 limit ($500,000 MFS) continues to apply to home acquisition debt incurred before December 16, 2017.
Standard deduction takers receive no benefit. The home mortgage interest deduction is an itemized deduction available only on Schedule A.
Who can deduct home equity loan interest?
Eligibility depends on how the loan proceeds were used and whether the filer itemizes deductions.
- Itemizers who used proceeds to improve the secured home: Eligible to deduct qualifying interest on Schedule A, Line 8a, per IRS Publication 936. The home must be a qualified residence, the filer’s main home or one designated second home. The combined balance of all mortgage debt and home equity debt on the property cannot exceed $750,000 (post-2017 debt) or $1,000,000 (pre-December 16, 2017 debt) for interest to be fully deductible.
- Itemizers who used proceeds for personal expenses: Not eligible on the personal-use portion. Interest on home equity debt used for debt consolidation, vehicle purchases, tuition, vacations, or any purpose other than home improvement does not qualify under IRC Section 163(h). The disallowance applies regardless of the total loan balance or the filer’s income level.
- HELOC borrowers with mixed-use draws: Eligible only on the home-improvement portion. If a HELOC was used partly for a home renovation and partly for personal expenses, interest must be allocated between qualifying and non-qualifying use. Only the interest allocable to the home-improvement draws is deductible.
- Standard deduction takers: Not eligible. There is no above-the-line deduction for home equity interest. Without itemizing on Schedule A, no federal tax benefit is available regardless of how the loan proceeds were used.
- Self-employed filers or rental property owners using home equity for business: The portion of interest allocable to business or rental use may be deductible as a business expense on Schedule C or as a rental expense on Schedule E, rather than on Schedule A. The use-of-proceeds rule applies to determine which interest is treated as home mortgage interest and which is treated as business interest.
A filer who took out a $100,000 HELOC and used $60,000 to renovate the kitchen and $40,000 to pay off credit card debt can deduct 60% of the interest as home mortgage interest. The remaining 40% is nondeductible personal interest.
How much home equity loan interest can you deduct?
The deductible amount is the interest on the qualifying (home-improvement) portion of the loan, subject to the combined mortgage debt limit.
| Situation | Deductible interest | Where to report |
|---|---|---|
| Proceeds used entirely to buy, build, or improve the secured home; combined debt under $750,000 | Full interest amount from Form 1098 | Schedule A (Form 1040), Line 8a |
| Proceeds used partly for home improvement, partly for personal expenses (mixed use) | Interest allocable to home-improvement portion only | Schedule A (Form 1040), Line 8a (qualifying portion only) |
| Proceeds used entirely for personal expenses (debt consolidation, vehicles, etc.) | $0 (not deductible) | N/A |
| Standard deduction taker | $0 (no benefit without itemizing) | N/A |
The $750,000 limit applies to combined home acquisition debt and home equity debt on the same property, not to the home equity loan alone. A filer with a $700,000 primary mortgage balance and a $100,000 HELOC used for home improvements would have $800,000 in combined debt, $50,000 above the limit, and could only deduct interest on $750,000 of that total.
How to deduct home equity loan interest
Claiming the deduction requires documenting how the proceeds were used and reporting only the qualifying portion. Here is the process for eligible itemizers.
- Confirm how the loan proceeds were used. Per IRS Publication 936, interest is deductible only on the portion of a home equity loan used to buy, build, or substantially improve the home that secures the loan. If the proceeds were used for any other purpose, that portion of the interest is not deductible. Gather bank statements, contractor invoices, or other records showing the specific use of each draw.
- Calculate the qualifying percentage for mixed-use loans. Divide the amount used for home improvement by the total loan balance to determine the deductible percentage. Apply that percentage to the total interest paid during the year (from Form 1098) to arrive at the deductible amount.
- Verify your combined mortgage debt does not exceed the applicable limit. Add the outstanding balance of your primary mortgage to the home equity loan balance. If the combined total exceeds $750,000 (for post-2017 debt), only interest on $750,000 of the combined balance is deductible. IRS Publication 936 includes a worksheet for calculating the deductible amount when total debt exceeds the limit.
- Report qualifying interest on Schedule A (Form 1040), Line 8a. If you received a Form 1098 showing total interest paid, enter only the qualifying portion on Line 8a. If the Form 1098 includes non-qualifying interest in the total, attach a statement to your return explaining that you are limiting the deduction to the qualifying amount and showing your calculation.
- Keep all supporting documentation for at least three years. Retain Form 1098, contractor invoices and receipts showing home improvement use, bank statements documenting the use of each draw, and any allocation calculations. Per IRC Section 6501, the IRS can audit returns within three years of the filing date.
Common mistakes when deducting home equity loan interest
The most common error is deducting all interest on a home equity loan regardless of how the proceeds were used. Using a HELOC to consolidate credit card debt, purchase a car, or fund a vacation does not qualify under the IRS use-of-proceeds rule, even though the loan is secured by the home.
Deducting that interest on Schedule A is an incorrect claim that can result in IRS adjustments and penalties.
A related mistake is treating the $750,000 debt limit as a separate cap for the home equity loan, independent of the primary mortgage. Per IRS Publication 936, the limit applies to combined home acquisition debt and home equity debt on the property. A filer who carries a large primary mortgage may have little or no room under the cap for additional home equity debt.
- Failing to track HELOC use at the time of each draw: HELOC borrowers who draw funds for mixed purposes over time often cannot reconstruct the use-of-proceeds allocation at tax time. The IRS requires the deduction to reflect actual use. Tracking each draw in a simple log at the time it is made, noting the amount, date, and purpose, is far easier than trying to reconstruct allocations from bank statements after the fact.
- Deducting interest when the home equity debt was used for rental property improvements: Interest on home equity debt used to improve a rental property is not deductible as home mortgage interest on Schedule A. It may be deductible as a rental expense on Schedule E, but the two deductions follow different rules and require separate documentation of the investment-use purpose.
- Overlooking the Form 1098 total vs. the deductible amount: The Form 1098 from a lender reports total interest paid on the loan, which may include non-qualifying interest if the HELOC had mixed use. The Form 1098 amount is not automatically the deductible amount. Entering the full Form 1098 figure on Schedule A when only a portion qualifies overstates the deduction.
Pro tip: Homeowners planning a major renovation who already carry a large primary mortgage should calculate their remaining room under the $750,000 combined debt cap before drawing on a HELOC for the project. If the primary mortgage balance plus the planned HELOC draw would exceed $750,000, only the interest on the capped portion is deductible, and the math may affect whether financing the renovation through home equity is more or less advantageous than other financing options. Doing this calculation before the draw is taken avoids the surprise of a partially disallowed deduction at filing time.
Home equity interest deductibility turns entirely on the use of proceeds, not the structure of the loan. Borrowers who use home equity strategically for qualifying improvements and track each use carefully can preserve the deduction. Those who tap home equity for personal spending lose the deduction entirely on that portion, even though the loan is secured by the same home.
Key takeaways
- Home equity loan and HELOC interest is deductible only when proceeds are used to buy, build, or substantially improve the home securing the loan, per IRS Publication 936. Interest on proceeds used for personal expenses is not deductible under any filing method.
- The deduction is an itemized deduction reported on Schedule A (Form 1040), Line 8a. Standard deduction takers receive no tax benefit from home equity interest regardless of how the proceeds were used.
- The $750,000 combined debt limit (for loans taken after December 15, 2017) applies to total home acquisition debt plus home equity debt on the property, not to the home equity loan alone. The One Big Beautiful Bill Act made this $750,000 limit permanent.
- HELOC borrowers with mixed-use draws must allocate interest between qualifying and non-qualifying portions. Only the interest attributable to home-improvement draws is deductible on Schedule A.
Frequently asked questions about deducting home equity loan interest
Can you deduct home equity loan interest without itemizing?
No. There is no above-the-line deduction for home equity interest. The deduction is available only on Schedule A, which requires itemizing. Standard deduction takers receive no federal tax benefit from home equity loan interest, regardless of how the loan proceeds were used.
Is HELOC interest deductible for a rental property?
Not as home mortgage interest on Schedule A. If you used a HELOC secured by your primary residence to fund improvements to a rental property, that interest is treated as investment or rental interest, not home mortgage interest. The rental-use portion may be deductible as a rental expense on Schedule E, subject to passive activity rules. The two deductions follow different rules, and the use-of-proceeds must be documented carefully to support either claim.
What records do you need to deduct home equity interest?
Retain Form 1098 from the lender showing total interest paid, contractor invoices and receipts documenting home improvement work paid with the loan proceeds, bank statements showing the specific amounts and dates of each draw, and any allocation worksheet if the loan had mixed use.
Per IRC Section 6501, keep all documentation for at least three years from the filing date.
What counts as substantially improving the home for deduction purposes?
Per IRS Publication 936, substantial improvements are amounts paid to better the home, restore it, or adapt it to a new use, for example, adding a room, finishing a basement, replacing a roof, installing new HVAC, or building an addition.
Routine repairs that simply maintain the home in its current condition, such as fixing a broken lock or repainting a room, do not qualify as substantial improvements for purposes of the home acquisition debt rules. However, painting done as part of a larger qualifying renovation can be included in the cost of the improvement.
If you are unsure whether your use of home equity proceeds qualifies for the interest deduction, or whether your combined mortgage debt exceeds the applicable limit, a tax professional can run the calculation for your specific situation.
SuperMoney’s tax preparation services comparison includes CPAs and enrolled agents with experience in Schedule A itemized deductions including mortgage interest. Homeowners who used home equity proceeds for renovation work may also want to review how capital improvements affect the home’s adjusted basis and the tax outcome at sale.
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Disclaimer:The information on this page is for general educational purposes only and does not constitute tax, legal, or financial advice. Tax laws are subject to change and vary based on individual circumstances. The content reflects IRS rules as of the date this article was last updated and may not account for recent legislative or regulatory changes. SuperMoney is not a licensed tax advisor, and nothing on this page creates an advisor-client relationship. Consult a licensed CPA or tax professional for guidance specific to your situation.
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