Can You Claim Home Equity Loan Interest on Taxes?

You can claim the home equity loan interest deduction only if you used the borrowed money to buy, build, or substantially improve the home that secures the loan. The Tax Cuts and Jobs Act suspended the broader deduction starting in 2018, and the One Big Beautiful Bill Act (P.L. 119-21) made that suspension permanent. For 2026 and every year going forward, interest on home equity funds spent on personal expenses like credit card payoffs, tuition, or a new car is not deductible, no matter how much equity backs the loan.¹

The Buy, Build, or Substantially Improve Test

The IRS treats home equity loan interest the same as regular mortgage interest when the proceeds go toward buying, building, or substantially improving the home that secures the debt. Take out a loan against your primary residence and use the funds to add a bedroom, replace the roof, or install a new HVAC system, and the interest qualifies as deductible acquisition debt.¹

The phrase to read carefully is the home “that secures the loan.” Borrowing against your primary residence to renovate a different property you own does not meet the test. The collateral and the improved property have to be the same home.

Substantial improvements are projects that add value to the property or meaningfully extend its useful life. New windows, a kitchen remodel, a finished basement. Routine maintenance like repainting, patching drywall, or fixing a dripping faucet does not count. The line the IRS draws is between capital improvements and ordinary upkeep, and only capital improvements qualify.

What Uses Disqualify the Interest

Before the TCJA, homeowners routinely deducted interest on home equity debt regardless of how they spent the money. That door is now permanently closed. Interest on home equity funds used for debt consolidation, tuition, medical bills, car purchases, or any other personal expense is not deductible.²

This catches a lot of people off guard because the loan itself is legally secured by the home. Security and deductibility are two separate questions. What the lender calls the product does not matter either. A “home equity line of credit” whose proceeds bought a boat produces no deductible interest.¹

The $750,000 Combined Debt Cap

Even when a home equity loan meets the use-of-funds test, there is a ceiling on how much qualifying debt can generate a deduction. The limit is $750,000 in total acquisition debt for single filers and married couples filing jointly, or $375,000 for married taxpayers filing separately.³ The One Big Beautiful Bill Act made this cap permanent, so it applies for 2026 and beyond.

The limit covers everything combined: your first mortgage, any second mortgage, and any home equity loan or line of credit across both your primary and second home. If your first mortgage balance is $600,000 and you take out a $200,000 home equity loan for a renovation, your total qualifying debt is $800,000. You can only deduct interest on the first $750,000, so the deduction has to be prorated.¹

Grandfathered Debt From Before December 16, 2017

Mortgages taken out on or before December 15, 2017, fall under the older $1 million limit, or $500,000 if married filing separately.³ Any grandfathered balance still reduces the $750,000 cap available for newer debt. If you still owe $400,000 on a pre-2018 mortgage, a new home equity loan can only add $350,000 to your deductible total.⁴

Mixed-Use Loans

Many homeowners use part of a home equity loan for a renovation and the rest for something personal. When that happens, the interest has to be split. Only the share tied to the qualifying home improvement is deductible.

The math is straightforward. Borrow $100,000, spend $70,000 on a new kitchen and $30,000 paying off credit cards, and 70 percent of the interest you paid that year is potentially deductible. The remaining 30 percent is personal interest with no tax benefit. Publication 936 includes a worksheet for making the allocation when the numbers get more complex, such as when your total debt also exceeds the $750,000 cap.¹

This is where claims tend to fall apart during audits. Without clear records showing exactly how much went to the renovation and how much went elsewhere, the IRS has grounds to disallow the entire deduction. Keep separate accounts, or at minimum a dated ledger showing each disbursement and its purpose.

Claiming the Deduction on Schedule A

You can only claim the home equity interest deduction if you itemize on Schedule A of Form 1040. That means giving up the standard deduction.⁵ Interest reported on Form 1098 goes on Schedule A, line 8a. Interest you paid that was not reported on a 1098 goes on line 8b.¹

Itemizing only saves you money when your total itemized deductions exceed the standard deduction. For the 2026 tax year, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.⁶ Add up your mortgage interest, state and local taxes (capped at $40,000 under the OBBBA), charitable contributions, and any other itemizable expenses. If the total falls short of the standard deduction, itemizing costs you money.

If you have a mixed-use loan, the Form 1098 from your lender will show the total interest without separating the deductible and non-deductible portions. The allocation is your responsibility.

Records to Keep

Your lender will send IRS Form 1098 by the end of January showing the total mortgage interest you paid the prior year in Box 1. Verify it against your own payment records. If the form is wrong, contact your lender for a corrected version rather than simply overriding the number on your return.

Beyond the 1098, keep every document that connects loan proceeds to the improvement project: contractor invoices, signed contracts, building permits, and receipts for materials. These prove the funds went toward qualifying work and that the work meets the substantial improvement threshold. The IRS generally has three years from your filing date to audit a return, so hold onto these records at least that long.⁷ Records tied to home purchases and improvements are worth keeping longer, since they also affect your cost basis when you sell.

A Note on Second Homes

The same rules extend to one qualified second home. The IRS defines a qualified residence as your main home or one second home, which can be a house, condo, mobile home, or boat as long as it has sleeping, cooking, and toilet facilities.¹ The $750,000 cap covers debt across both homes combined, not $750,000 per property. If you rent the second home out, you have to use it yourself for the longer of 14 days or 10 percent of the rental days, or the IRS treats it as rental real estate rather than a qualified second home.

1
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
2
Internal Revenue Service. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses) 2
3
Office of the Law Revision Counsel. 26 USC 163 – Interest
4
Internal Revenue Service. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses) 5
5
Internal Revenue Service. Instructions for Schedule A (Form 1040) (2025)
6
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
7
Internal Revenue Service. Topic No. 305, Recordkeeping