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

A HELOC (home equity line of credit) is a loan against the equity you have built in your house. The interest you pay on it may or may not be tax-deductible, depending entirely on what you do with the money you borrow.

If you use HELOC funds to renovate your kitchen, add a room, or make other improvements to the house itself, the interest is deductible. If you use the money to pay off credit card debt, buy a car, or cover medical bills, the interest is not deductible. The IRS does not care how much you borrowed or what rate you got — only what the money was spent on.

This rule comes from the Tax Cuts and Jobs Act of 2017, which eliminated deductions for interest on most consumer debt but kept the deduction for interest on loans secured by your home and used for home improvement.

Key Takeaways

  • HELOC interest is deductible only when the borrowed funds are used to buy, build, or substantially improve your primary home or a second home you own.
  • Using HELOC money for anything else — debt consolidation, education, medical expenses, or personal purchases — makes the interest non-deductible.
  • You must itemize deductions on your tax return to claim HELOC interest; the standard deduction does not include it.
  • The total mortgage debt on which you can deduct interest is capped at $750,000 (or $375,000 if married filing separately) across all mortgages and HELOCs combined.
  • You will need documentation from your lender showing how much interest you paid, and you should track how you spent the borrowed money.

How the deduction works: the home improvement test

The IRS uses a straightforward test: did the money go toward the home itself? If yes, the interest is deductible. If no, it is not.

"Home improvement" means work that adds value to your home, prolongs its life, or adapts it to a new use. Examples include a new roof, kitchen remodel, bathroom renovation, deck addition, new HVAC system, or foundation repair. Painting the exterior, replacing windows, and adding insulation all count.

Routine maintenance does not count. Fixing a leaky faucet or patching drywall is upkeep, not improvement, so interest on a HELOC used for those repairs would not be deductible. The distinction matters because the IRS audits HELOC deductions more closely than standard mortgage interest.

If you borrowed $50,000 on a HELOC and spent $30,000 on a kitchen renovation and $20,000 on a car, only the interest on the $30,000 portion is deductible. You need to track this split carefully, because the burden is on you to prove it to the IRS if questioned.

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

You can deduct interest only on the first $750,000 of mortgage debt (or $375,000 if you file as married filing separately). This cap applies to all mortgages and HELOCs combined on your primary home and one second home.

If you have a $600,000 mortgage and a $200,000 HELOC, your total debt is $800,000. You can deduct interest only on $750,000 of that. The interest on the remaining $50,000 of HELOC debt is not deductible, even if you used it for home improvement.

This cap has been in place since 2018 and applies to all new mortgages and HELOCs taken out after December 15, 2017. If you borrowed before that date, a higher cap ($1 million) may apply to your debt, but you should verify this with a tax professional.

You must itemize deductions to claim HELOC interest

Claiming HELOC interest requires you to itemize deductions on Schedule A of your tax return. You cannot claim it if you take the standard deduction.

In 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If your total itemized deductions (HELOC interest plus state and local taxes, charitable donations, and other deductible expenses) do not exceed the standard deduction, you will not benefit from deducting the HELOC interest.

Many homeowners find that their itemized deductions do not exceed the standard deduction, which means they cannot deduct HELOC interest even though they used the money for home improvement. A tax professional can help you calculate whether itemizing makes sense for your situation.

Documentation you need to keep

Your lender will send you a Form 1098 each January showing the total interest you paid on the HELOC during the previous year. This form is the starting point for your deduction claim.

Beyond the 1098, you should keep records showing what you spent the borrowed money on. This might include contractor invoices, receipts, cancelled checks, or credit card statements showing payments to home improvement vendors. If the IRS questions your deduction, you will need to show that the funds went toward home improvement, not personal use.

If you borrowed $100,000 but used only part of it for home improvement, keep a record of how much went to the home and how much went elsewhere. A simple spreadsheet or folder of receipts is sufficient, but it must be clear and organized.

Common situations where HELOC interest is not deductible

Using a HELOC to pay off credit card debt is the most common non-deductible use. Even though you are paying down debt, the interest on the HELOC itself is not deductible because the money was not used for home improvement.

Borrowing against your home to pay for education, medical bills, or a car purchase also makes the interest non-deductible. Using HELOC funds for a vacation, to start a business, or to invest in stocks or bonds does not may have access to either. The rule is strict: the money must go into the home itself.

If you used a HELOC for a mix of purposes — say, $40,000 for a roof replacement and $10,000 for a car — only the interest on the $40,000 is deductible. You cannot average or blend the uses.

Frequently Asked Questions

Can I deduct HELOC interest if I used the money to build a home office?

Yes, if the work was a genuine home improvement — adding a room, finishing a basement, or building an addition. If you simply bought furniture and equipment for an existing room, that is not deductible. The improvement must be to the structure or systems of the home itself.

What if I borrowed on a HELOC but have not spent the money yet?

The deduction depends on when you spend it, not when you borrow it. If you open a HELOC in 2024 but do not use the funds until 2025, the interest is deductible starting in 2025, when you actually use the money for home improvement. Interest paid before you spend the money is not deductible.

Does it matter if the HELOC is on my primary home or a rental property?

Yes. The deduction applies only to HELOCs on your primary home or one second home you own. If the property is a rental or investment property, different rules apply, and you would need to consult a tax professional about deducting interest on that debt.

Can I deduct HELOC interest if I did not itemize last year?

You can claim it this year if your itemized deductions now exceed the standard deduction. Tax situations change year to year, so it is worth recalculating each year. A tax professional can help you determine whether itemizing makes sense for your current situation.