Are Home Equity Loans Tax Deductible? Use, Limits, and Records

Home equity loans are tax deductible only when you use the borrowed money to buy, build, or substantially improve the home that secures the loan, and only on total mortgage debt up to $750,000 for most homeowners. If you spent the proceeds on anything else—paying off credit cards, buying a car, covering medical bills, tuition—the interest is not deductible, no matter what the lender calls the loan. The Tax Cuts and Jobs Act of 2017 first imposed these restrictions for tax years 2018 through 2025, and the One Big Beautiful Bill Act of 2025 made them permanent, so the same rules carry into 2026 and beyond.

How You Used the Money Decides Everything

The IRS looks at where the loan proceeds went, not the product name on your paperwork. Home equity loan interest qualifies for a deduction only if the money was used to buy, build, or significantly improve the home securing the debt.¹ A HELOC used to add a second story or replace the plumbing qualifies. The same credit line used to consolidate debt does not.

There is a second requirement people often miss: the loan has to be secured by the property you are improving. If you borrow against your primary residence to renovate a vacation cabin, that interest is not deductible even though both homes might otherwise qualify. The borrowed funds have to go back into the home serving as collateral.¹

What Counts as a Substantial Improvement

The IRS treats work as a substantial improvement when it increases the home’s value, extends how long the home will last, or adapts it to a new use.¹ A new roof, an added bedroom or bathroom, an HVAC replacement, or a full kitchen remodel all fit.

Routine upkeep does not. Repainting walls, fixing a leaky faucet, or patching drywall keep the home in its current condition without meaningfully adding value.² One exception: if a smaller task like painting is part of a larger qualifying renovation, its cost can be rolled into the improvement total.¹

When One Loan Covers Both Improvements and Personal Spending

If a single loan pays for both, only the interest tied to the improvement portion is deductible. Borrow $100,000, spend $60,000 on a kitchen remodel and $40,000 on a car, and 60 percent of the interest may be deductible. You need clear documentation to prove the split: separate accounts, dated invoices, signed contractor agreements. Without a paper trail, the IRS has no way to verify how the money was divided, and the deduction can be lost entirely.

The Debt Cap

Federal law caps the total mortgage debt on which interest can be deducted. The cap depends on when the mortgage was originally taken out:

Mortgages taken out after December 15, 2017: the combined limit for all mortgage and home equity debt is $750,000, or $375,000 if married filing separately.¹
Mortgages taken out before December 16, 2017: the limit is $1 million, or $500,000 if married filing separately.¹

The cap applies to your total qualifying debt across all residences, not per property. Interest on any balance above the cap is not deductible. If you hold both pre-2018 and post-2017 mortgage debt, the older loan eats into the $750,000 room available for the newer one. Publication 936 has worksheets for calculating the deductible share when loans overlap.

Which Homes Qualify

The loan has to be secured by a “qualified residence,” which the IRS defines as your main home or one designated second home.¹ Your main home is where you live most of the time. If you own multiple additional properties, only one can be treated as the second home in a given tax year.

The property does not have to be a traditional house. Condominiums, co-ops, mobile homes, houseboats, and trailers all qualify, provided they have sleeping, cooking, and bathroom facilities.¹

Points Paid at Closing

Points are prepaid interest, and they follow their own rules. If you paid points on a home equity loan used to substantially improve your main home, you may deduct them in full the year you paid them, provided you meet six IRS requirements.¹ The main ones: the loan is secured by your main home, the points charged are consistent with local practice, and you brought enough of your own funds to closing to cover them.

Miss any test, or use the loan on a second home rather than your main home, and you have to spread the points deduction evenly over the full term of the loan.¹ Points on a home equity loan whose proceeds were not used for home improvements are not deductible at all.

Refinancing a Home Equity Loan

Refinancing a home equity loan that originally qualified does not automatically kill the deduction. The replacement loan can still generate deductible interest, but only up to the remaining balance of the original qualifying debt.¹ Cash-out amounts beyond that balance qualify only if you put them into buying, building, or improving the same home.

If you had been amortizing points from the original loan, you can deduct the remaining unamortized balance in the year of the refinance. Points on the new loan generally have to be spread across the new loan’s term, unless the proceeds go toward substantial improvements and you meet the six tests above.¹

How to Claim the Deduction

You have to itemize on Schedule A of Form 1040. That only pays off when your total deductible expenses—mortgage interest, state and local taxes, charitable contributions, and other qualifying items—exceed the standard deduction for your filing status. For tax year 2026:³

Single or married filing separately: $16,100
Married filing jointly: $32,200
Head of household: $24,150

Your lender will send Form 1098, which reports total mortgage interest paid in Box 1 and points paid in Box 6.⁴ Deductible interest goes on Line 8 of Schedule A. If you did not use all the loan proceeds for improvements, check the box on that line indicating partial use and enter only the deductible portion. Hold on to receipts, invoices, and contracts documenting how the money was spent.

How Long to Keep the Records

The IRS generally wants tax records kept for at least three years from the date the return was filed. That window stretches to six years if you underreported income by more than 25 percent.⁵

Home improvement records deserve a longer shelf life. The IRS says to keep property-related records until the statute of limitations runs out for the year you sell the property.⁵ Improvement costs add to your home’s tax basis and can reduce capital gains tax at sale, so keeping contractor invoices, permits, and payment records for as long as you own the home, plus at least three years after selling, is the safe play.

1
Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction
2
Internal Revenue Service. Tangible Property Regulations – Frequently Asked Questions
3
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
4
Internal Revenue Service. Instructions for Form 1098
5
Internal Revenue Service. How Long Should I Keep Records