Is HELOC Interest Tax Deductible: Uses, $750K Cap, and Filing

Interest on a home equity line of credit is tax deductible only when you use the borrowed money to buy, build, or substantially improve the home that secures the loan, and only to the extent your combined home-secured debt stays within the IRS cap of $750,000 ($375,000 if married filing separately).¹ Those rules came in with the Tax Cuts and Jobs Act in 2017 and were made permanent by the One Big Beautiful Bill Act, signed into law on July 4, 2025.²

What You Spent the Money On Decides It

The IRS looks at how the funds are used, not what the loan is called. A HELOC secured by your home produces deductible interest only if the proceeds go toward acquiring, constructing, or substantially improving a qualified residence.³ Kitchen renovations and room additions qualify. Vacations, tuition, and paying off credit cards do not.¹

This is a change worth flagging if you last looked at these rules years ago. Before the TCJA, homeowners could deduct interest on up to $100,000 of home equity debt used for any purpose. That separate category is gone. If your HELOC money went anywhere other than the home securing it, the interest attributable to those dollars is not deductible.¹

What Counts as a Substantial Improvement

A qualifying improvement adds value to the home, extends its useful life, or adapts it to a new use. Routine upkeep does not qualify because it keeps the home in its existing condition rather than improving it.

Projects that generally qualify:

Additions such as an extra room, a second story, or a detached garage
Major remodels that involve new plumbing, cabinetry, or structural changes
System replacements like a new roof, a new HVAC system, or rewiring
New permanent features such as an in-ground pool, a deck, or energy-efficient windows

Work that does not qualify:

Painting, patching drywall, and other cosmetic upkeep
Fixing a leaky faucet, replacing a cracked window pane, or re-caulking a tub
Seasonal tasks like gutter cleaning, lawn care, and pest control

A practical test when the line feels fuzzy: if the same project would need to be capitalized rather than expensed on a rental property, it likely counts as a substantial improvement for HELOC interest purposes.

The $750,000 Cap on Home Debt

The deduction is limited to interest on a total of $750,000 in home-secured debt ($375,000 if married filing separately).¹ That ceiling covers everything secured by your qualified residences combined: your first mortgage, your HELOC, and any other loan with a lien on the property. Balances on a primary home and a second home both count against the single cap.

Stay at or below $750,000 and every dollar of interest on qualifying debt is deductible. Go over and you deduct a proportional share. If you carry a $600,000 mortgage and draw $200,000 on a HELOC for a renovation, total qualifying debt is $800,000, and 93.75% of the interest is deductible ($750,000 ÷ $800,000).¹

Older debt gets a higher ceiling. Mortgage debt taken out before December 16, 2017, uses a $1 million cap ($500,000 if married filing separately).¹ Refinancing a pre-2017 mortgage generally preserves that higher limit, but only up to the remaining principal on the original loan; any additional borrowed amount is treated as new debt under $750,000.

When You Used the HELOC for a Mix of Things

Most HELOCs get used in more than one way. If part of the credit line paid for a qualifying improvement and part covered something else, only the qualifying portion of the interest is deductible.¹

You need to track each draw against a specific expense. Say you pull $80,000 from a $100,000 HELOC: $60,000 for a new roof and $20,000 to pay down credit card balances. Only 75% of the interest on that $80,000 is deductible ($60,000 ÷ $80,000). The $20,000 spent on personal debt generates no deduction at all.

The cleanest way to document mixed use is to route HELOC draws through a separate account used only for the renovation. Commingling the funds in a general checking account without careful records makes the qualifying share much harder to prove.

A HELOC on a Second Home

The home securing the HELOC does not have to be your primary residence. A second home qualifies too if it meets the IRS definition of a qualified residence, which means it has sleeping, cooking, and toilet facilities. Houses, condominiums, mobile homes, and houseboats can all count.¹

If you never rent the second home out, it qualifies automatically and you do not even need to use it yourself. If you do rent it out, you must use it personally for more than 14 days or more than 10% of the days it was rented, whichever is longer. Fall short of that and the IRS treats it as rental property rather than a qualified second home. Only one property can be designated as your second home in a given year.¹

How to Claim HELOC Interest on Your Return

HELOC interest is deducted on Schedule A of Form 1040, which means you have to itemize.⁴ If your total itemized deductions come in below the standard deduction, itemizing gives you nothing. For 2026, the standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers and those married filing separately, and $24,150 for heads of household.⁵

Your lender sends Form 1098 reporting total interest for the year, but only when the interest exceeds $600 on a given loan.⁶ Pay less than that and you may not get a 1098, though you can still claim the deduction from your own records. Form 1098 also does not distinguish qualifying from non-qualifying interest on a mixed-use HELOC. That math is on you, and only the qualifying portion goes on Schedule A.

Keep the paperwork that ties draws to the work for at least three years after filing:

Contractor invoices and receipts that match specific projects
Bank statements showing HELOC disbursements and where the money went
Form 1098 from your lender
Permits, contracts, or plans confirming the scope of the improvement

You do not attach any of this to the return. It is what you produce if the IRS asks how you arrived at the deduction, and a file that traces each draw to a specific improvement is usually enough to close an inquiry quickly.

1
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
2
Internal Revenue Service. One, Big, Beautiful Bill Provisions
3
Office of the Law Revision Counsel. 26 U.S. Code 163 – Interest
4
Internal Revenue Service. About Schedule A (Form 1040), Itemized Deductions
5
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
6
Internal Revenue Service. Instructions for Form 1098