HELOC interest is tax-deductible only if you use the borrowed money to buy, build, or improve a home

The IRS allows you to deduct HELOC interest only when the loan is secured by your home and the money goes toward home improvement or acquisition. If you borrow against your home equity and use that money for anything else — paying credit card debt, funding a business, paying medical bills, or taking a vacation — the interest is not deductible, even though the loan itself is backed by your house.

This rule comes from Section 163(h)(3) of the Internal Revenue Code. The distinction matters because many people assume that because a HELOC is tied to their home, all the interest must be deductible. It is not. The use of the money, not the form of the loan, determines whether you can deduct the interest.

The $750,000 limit on home equity debt also applies. If your total mortgage debt plus HELOC balance exceeds $750,000 (or $375,000 if you are married filing separately), you cannot deduct interest on the amount over that threshold. This cap has been in place since 2018 and is set to expire after 2025 unless Congress extends it.

Key Takeaways

  • HELOC interest is deductible only when you use the borrowed funds to buy, build, or substantially improve the home that secures the loan.
  • Using HELOC money for debt consolidation, medical expenses, education, or any non-home purpose makes the interest non-deductible, regardless of the loan structure.
  • You must itemize deductions on Schedule A to claim mortgage or HELOC interest; the standard deduction does not include this benefit.
  • The combined balance of your mortgage and HELOC cannot exceed $750,000 for you to deduct all the interest; amounts above that threshold are not deductible.
  • You will need documentation from your lender showing how much interest you paid in the tax year, which appears on Form 1098-H if the lender issues one.

What counts as a deductible use of HELOC funds

The IRS recognizes these uses as may have access to for interest deduction: purchasing your primary residence or a second home, building a new home on land you own, and making substantial improvements that add value to the property or prolong its useful life. Painting, new appliances, a roof replacement, a deck addition, or a kitchen remodel all may have access to. Routine maintenance — fixing a leak, replacing worn siding, or repainting — generally does not.

The key test is whether the improvement adds value or extends the life of the home. If you are unsure, the IRS Publication 936 provides examples, though a tax professional can give you a definitive answer for your specific project. Keep receipts and invoices from contractors or suppliers, because the IRS may ask for proof that the money actually went to home improvement.

If you borrowed $50,000 on a HELOC and used $30,000 for a kitchen renovation and $20,000 to pay off a car loan, only the interest on the $30,000 portion is deductible. You will need to track this split carefully, because your lender will report the total interest paid, not the portion attributable to each use.

Non-deductible uses of HELOC funds

Interest is not deductible when you use HELOC money for: paying off credit cards or other consumer debt, funding a business or investment, paying medical or dental expenses, covering education costs, taking a vacation, buying a car or boat, or any personal expense. Even though the loan is secured by your home, the IRS looks at what you did with the money, not the collateral behind the loan.

This is a common source of confusion. A homeowner might think: "I borrowed against my home, so the interest should be deductible." That logic does not hold. A HELOC is simply a way to borrow money using your home as security. The interest deduction depends entirely on where that money went.

If you used a HELOC to consolidate debt — borrowing $40,000 to pay off credit cards — none of the interest on that $40,000 is deductible, even though you may have lowered your overall interest rate by doing so. The interest on the original credit card debt was also not deductible, and converting it to a HELOC does not change that.

How to claim HELOC interest on your tax return

To deduct HELOC interest, you must itemize deductions on Schedule A (Form 1040) rather than taking the standard deduction. For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If your total itemized deductions — including HELOC interest, mortgage interest, property taxes, and charitable donations — exceed the standard deduction, itemizing makes sense. Otherwise, you will get a larger deduction by taking the standard amount.

Your lender will send you Form 1098-H if you paid $600 or more in HELOC interest during the tax year. Some lenders do not issue this form even if you paid interest; you can request a statement from your lender showing the total interest paid. You will report this amount on Schedule A, line 8 (mortgage interest and points reported by you).

If you used part of the HELOC for a deductible purpose and part for a non-deductible purpose, you must calculate the deductible portion yourself. Divide the amount borrowed for home improvement by the total HELOC balance, then multiply that percentage by the total interest paid. Keep a record of this calculation with your tax documents in case the IRS asks.

The $750,000 debt limit and how it affects your deduction

The Tax Cuts and Jobs Act of 2017 capped the amount of home equity debt on which you can deduct interest. The limit is $750,000 of combined mortgage debt and HELOC debt for married couples filing jointly, or $375,000 for married couples filing separately. Single filers and heads of household also use the $750,000 limit. This cap applies to loans taken out after December 15, 2017.

If your mortgage balance is $500,000 and your HELOC balance is $300,000, your total home equity debt is $800,000. You can deduct interest only on $750,000 of that debt. The interest on the $50,000 excess is not deductible. Your lender will not separate this for you; you will need to calculate it yourself or work with a tax professional.

This limit is scheduled to expire after December 31, 2025, unless Congress extends it. After that date, the previous limit of $1 million in home equity debt would return. Check current tax law or consult a tax professional closer to that date if your situation is affected.

Documentation you need to keep

Maintain records of the HELOC interest you paid, which your lender reports on Form 1098-H or a year-end statement. Keep receipts, invoices, and contracts for any home improvement work you funded with HELOC money. If you used part of the HELOC for home improvement and part for other purposes, document how much went to each use — bank statements showing transfers to contractors or suppliers help establish this.

If the IRS questions your deduction, you will need to show that the money actually went to home improvement and that the work was done. Contractor invoices, cancelled checks, credit card statements, and before-and-after photos all serve as evidence. The more detailed your records, the easier it is to defend your deduction.

Keep these documents for at least three years after you file your return, though the IRS can go back six years if it suspects underreporting of income. If you are audited on this issue, having clear documentation of both the HELOC interest paid and the home improvement expenses funded will resolve the matter quickly.

Frequently Asked Questions

Can I deduct HELOC interest if I used the money to pay off my credit cards?

No. Even though you borrowed against your home, the interest is not deductible because the money went to pay consumer debt, not to buy or improve a home. Converting high-interest credit card debt to a HELOC may lower your interest rate, but it does not make the interest tax-deductible.

What if I used part of my HELOC for home improvement and part for something else?

You can deduct interest only on the portion used for home improvement. Calculate the percentage of the loan used for that purpose, apply that percentage to the total interest paid, and deduct only that amount. Keep documentation showing how much went to each use.

Do I have to itemize deductions to claim HELOC interest?

Yes. HELOC interest is claimed on Schedule A as an itemized deduction. If your total itemized deductions do not exceed the standard deduction for your filing status, you will get a larger tax benefit by taking the standard deduction instead.

Will my lender send me a form showing the interest I paid?

Your lender will send Form 1098-H if you paid $600 or more in HELOC interest during the year. If you paid less or your lender does not issue the form, request a year-end statement showing total interest paid. You can still deduct the interest even without Form 1098-H.

What happens to the $750,000 debt limit after 2025?

The current $750,000 cap on home equity debt is set to expire after December 31, 2025. If Congress does not extend it, the limit will return to $1 million. Check current tax law or speak with a tax professional as that date approaches if your debt level is close to the limit.