HELOC interest is tax-deductible only if you use the borrowed money to buy, build, or improve a home that secures the line of credit
The IRS allows you to deduct interest on a HELOC, but only under specific conditions. The money must go toward your home — either the one the HELOC is attached to or another property you own. If you borrow against your home and spend the money on a car, credit card debt, medical bills, or anything else, that interest is not deductible. The IRS treats this the same way it treats other personal debt: the interest is yours to pay, with no tax benefit.
This rule comes from Section 163(h) of the tax code, which limits deductions on home equity debt to loans used for home purchase, construction, or substantial improvement. "Substantial" typically means work that adds value to the property or prolongs its life — a new roof, kitchen renovation, or addition. Painting, routine repairs, and maintenance usually do not count.
You also need to meet a debt limit. The total of your mortgage and HELOC combined cannot exceed the fair market value of your home. If your home is worth $300,000 and you owe $250,000 on a mortgage, you can deduct interest on a HELOC up to $50,000. Interest on amounts above that is not deductible, even if you used the money for home improvement.
Key Takeaways
- HELOC interest is deductible only if you use the borrowed money to buy, build, or improve a home that secures the line of credit.
- Money borrowed against your home and spent on personal expenses — cars, credit cards, medical bills — generates non-deductible interest.
- Your total mortgage and HELOC debt cannot exceed your home's fair market value for the interest to be deductible.
- You must itemize deductions on your tax return to claim HELOC interest; the standard deduction does not include it.
- Keeping records of how you spent the HELOC money is essential if the IRS questions your deduction.
How the IRS determines what counts as a home improvement
The line between a deductible home improvement and a non-deductible repair or maintenance expense is not always clear. The IRS looks at whether the work adds value to your home, prolongs its useful life, or adapts it to a new use.
A new roof is deductible because it extends the life of the house. A kitchen renovation that includes new cabinets, countertops, and appliances is deductible because it adds value. An addition — a bedroom, bathroom, or deck — is deductible. Replacing windows, upgrading HVAC systems, and installing solar panels typically may have access to.
Painting the interior or exterior, fixing a leaky faucet, replacing worn carpet, and repairing a broken window are maintenance and repairs, not improvements. They keep the home in its current condition but do not add value or extend its life beyond its original design. The IRS does not allow deductions for these costs.
If you are unsure, keep the contractor's invoice and description of the work. If the invoice says "kitchen renovation" rather than "repair," that helps your case. If you later face an audit and cannot show what the money was spent on, the IRS will disallow the deduction.
The debt limit and how it affects your deduction
The IRS caps the amount of home equity debt on which you can deduct interest. As of 2024, you can deduct interest on up to $750,000 of combined mortgage and HELOC debt if you are married filing jointly, or $375,000 if you are single or married filing separately. This limit applies to debt incurred after December 15, 2017.
Debt you took on before that date has a higher limit: $1 million for married couples and $500,000 for single filers. If you have both old and new debt, the older debt is treated separately and may have a higher deductible amount.
The debt limit is based on the loan amount, not the interest rate or the balance you currently owe. If you borrowed $100,000 on your HELOC for a home improvement, that full $100,000 counts toward the limit, even if you have paid down the balance to $60,000.
Your home's value does not change the debt limit — only the loan amount does. However, your home's value does set a ceiling on how much you can borrow. Most lenders will not let you borrow more than 85 percent of your home's equity, which is a separate constraint from the tax deduction limit.
Itemizing deductions versus the standard deduction
You can only claim HELOC interest if you itemize deductions on your tax return. Most people take the standard deduction instead, which means they do not list individual expenses. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly.
If your total itemized deductions — mortgage interest, HELOC interest, property taxes, charitable donations, and other may be able to access expenses — add up to more than the standard deduction, itemizing saves you money. If they do not, the standard deduction is better, and you get no tax benefit from HELOC interest.
Many homeowners find that itemizing is worth it only if they have a large mortgage, high property taxes, or significant charitable donations in addition to HELOC interest. A tax professional can run the numbers for your situation and tell you which approach saves more.
Documentation you need if the IRS questions your deduction
The IRS does not require you to attach proof to your tax return, but if you are audited, you must show how you spent the HELOC money. Keep the following documents: the HELOC agreement, bank statements showing the withdrawal, invoices from contractors or suppliers, and receipts for materials or labor.
If you borrowed $50,000 for a kitchen renovation, you should have invoices totaling $50,000 or close to it. If you borrowed $50,000 but only spent $30,000 on the kitchen and moved the rest to a savings account, the IRS may disallow the deduction on the $20,000 you did not spend on home improvement.
The IRS is most likely to question HELOC deductions when the loan amount is large, the interest deduction is substantial, or the documentation is thin. If you cannot show what the money was spent on, the deduction will be denied and you may owe back taxes plus penalties.
State tax treatment of HELOC interest
Some states allow HELOC interest deductions on state income tax returns, and some do not. A few states have no income tax at all. You need to check your state's rules separately from the federal rules.
California, for example, generally follows federal tax law, so if you can deduct HELOC interest on your federal return, you can deduct it on your California return too. New York also allows the deduction if it is deductible federally. Other states may have different limits or rules.
If you live in a state with income tax, contact your state tax authority or speak with a tax professional about how HELOC interest is treated. The federal deduction does not automatically carry over to your state return.
Frequently Asked Questions
Can I deduct HELOC interest if I used the money to pay off credit card debt?
No. The IRS only allows deductions when you use the money to buy, build, or improve a home. Paying off credit card debt, personal loans, or other non-home expenses does not may have access to, even though you borrowed the money against your home. The interest on that HELOC balance is not deductible.
What if I used part of my HELOC for a home improvement and part for something else?
You can deduct interest only on the portion used for home improvement. If you borrowed $60,000 and spent $40,000 on a bathroom renovation and $20,000 on a car, you can deduct interest on the $40,000 portion only. You need clear documentation showing how much went to each use.
Do I have to deduct HELOC interest every year, or can I skip it some years?
You do not have to claim the deduction every year. If itemizing deductions does not save you money in a particular year, you can take the standard deduction instead. You can switch between itemizing and taking the standard deduction from year to year based on which is better for you.
If my HELOC is on a rental property I own, can I deduct the interest?
Yes, but the rules are different. Interest on a HELOC used to improve or maintain a rental property is deductible as a business expense on Schedule E, not as a home equity deduction. You do not face the same debt limits, but you must show that the money was spent on the rental property.
What happens if I cannot prove how I spent the HELOC money?
If the IRS audits you and you cannot show documentation of how the money was spent, the deduction will be disallowed. You will owe back taxes on the amount you deducted, plus interest and possibly penalties. Keep invoices, receipts, and bank statements for at least three years after you file your return.