Is home equity loan interest still tax deductible?

Yes, but only if you used the loan proceeds to buy, build, or substantially improve the home that secures the loan. Using the money for anything else — debt payoff, a car, tuition — makes the interest non-deductible under rules in effect through 2025.

What is the debt limit for the home equity loan deduction?

Your total mortgage debt — first mortgage plus any home equity loan — must be under $750,000 to deduct the full interest. For loans originated before December 16, 2017, the older $1 million limit may apply.

Do I need to itemize to deduct home equity loan interest?

Yes. The deduction only works if you itemize on Schedule A. With the 2025 standard deduction at $15,000 (single) and $30,000 (married filing jointly), most taxpayers won't benefit unless their total itemized deductions exceed those amounts.

Does a HELOC follow the same rules as a home equity loan?

Yes. HELOC interest is deductible only on the portion used for home improvement, subject to the same $750,000 total debt limit. If you drew funds for mixed purposes, you can only deduct the interest on the qualifying portion.

What happens to these rules after 2025?

The TCJA provisions are set to expire after December 31, 2025. If Congress doesn't extend them, the rules revert to pre-2018 law — meaning home equity interest would be deductible up to $100,000 regardless of how the funds were used.

Is a Home Equity Loan Tax Deductible?

The short answer: yes, but only if you used the money to buy, build, or substantially improve the home that secures the loan. That rule came from the Tax Cuts and Jobs Act of 2017, and it caught a lot of homeowners off guard.

Before 2018, you could deduct interest on up to $100,000 of home equity debt — no questions asked about what you did with the cash. Pay off credit cards, buy a car, take a vacation — didn't matter. Those days are gone, at least through 2025.

The Current Rule (2018–2025)

Under the TCJA, home equity loan interest is deductible only when the loan proceeds are used to buy, build, or substantially improve a qualified residence. The IRS calls this "acquisition indebtedness." The official guidance is in IRS Publication 936.

What counts as a qualified residence? Your primary home and one second home. The total debt limit — including your first mortgage plus any home equity loan — is $750,000 (or $375,000 if married filing separately). If your total mortgage debt is under that, you're generally in good shape.

What Qualifies and What Doesn't

Use of funds	Deductible?
Kitchen or bathroom remodel	✅ Yes
Adding a room or garage	✅ Yes
New roof or HVAC replacement	✅ Yes
Paying off credit card debt	❌ No
College tuition	❌ No
Buying a car	❌ No
Medical expenses	❌ No

The IRS doesn't require you to prove how you spent the money in your tax filing — but you should keep records (contracts, receipts, bank statements) in case of an audit. If you mix-used the loan (half renovation, half debt payoff), you can only deduct the interest proportional to the qualifying portion.

How Much Can You Actually Save?

Let's run real numbers. Say you took a $60,000 home equity loan at 8.5% to remodel your kitchen. Your annual interest is roughly $5,100.

If you're in the 22% federal bracket, that deduction saves you about $1,122 per year. In the 24% bracket, it's closer to $1,224. Over a 10-year loan, that's real money — but only if you itemize.

You Have to Itemize to Claim It

This is where most people miss out. The home equity interest deduction only works if you itemize deductions on Schedule A. For 2025, the standard deduction is:

$15,000 for single filers
$30,000 for married filing jointly
$22,500 for head of household

If your mortgage interest, property taxes, charitable donations, and other deductible expenses don't exceed those thresholds, you'll take the standard deduction — and the home equity interest deduction doesn't help you at all.

HELOCs Follow the Same Rules

A home equity line of credit (HELOC) works the same way. The interest is deductible only on the portion of the balance used for home improvement. If you drew $30,000 from a HELOC to renovate and another $20,000 to pay off student loans, you can deduct interest on the $30,000 — not the full $50,000.

What Happens After 2025?

The TCJA provisions are currently set to expire after December 31, 2025. If Congress doesn't act, the rules revert to the pre-2018 rules — meaning home equity interest would again be deductible up to $100,000 regardless of use.

The Bottom Line

A home equity loan can be tax-deductible, but it requires three things: the money went toward your home, your total mortgage debt is under $750,000, and you itemize deductions. If you check all three boxes, the deduction is legitimate and worth claiming. When in doubt, run it by a CPA before filing.