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Is home equity loan interest tax deductible?

If you use your home equity loan for specified improvements, then the interest is tax deductible.

Deducting interest paid on home loans is a top-tier benefit of being a homeowner. And, if you have a home equity loan, sometimes called a second mortgage, you may be able to deduct the interest if you use the loan for home improvements. However, there’s a cap on the loan amount, but unless you’re a millionaire, it probably won’t affect you.

Deducting home equity loan interest on your taxes

As of 2017, the rules around deducting interest on home equity loans have changed — and may change again in 2026. You may only deduct interest on $750,000 of qualified residence loans, or the limit is $375,000 for a married taxpayer filing a separate return, according to the IRS.

This means that your total mortgage debt can’t exceed $750,000 to deduct the interest.

For home equity loan interest to be deductible, you must use the money to “buy, build or substantially improve [your] home that secures the loan,” according to the IRS. Improvements that improve your home are called capital improvements, such as installing a new roof or adding a home office.

If you use the home equity loan to pay for personal expenses — such as student loans, credit card debt, or buying another home — the interest isn’t deductible.

Home improvements that are tax deductible (and ones that aren’t)

Generally, a home equity loan used for captial improvements on your home is tax deductible. A capital improvement is an improvement that increases your home’s value.

Here are some capital improvements that can be tax deductible and some improvements that won’t qualify:

Deductible improvementsNon-deductible improvements
  • A new roof
  • Adding a home office or bedroom
  • Building a fence
  • Storm windows
  • New heating or cooling systems
  • Repairing a damaged roof
  • Fixing a porch or railing
  • Replacing locks
  • Replacing or fixing a broken appliance
  • Painting a wall or room

As a general rule of thumb, capital improvements add significant value to your home, and regular repairs on existing structures aren’t eligible for tax deductions.

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How to claim home equity loan interest

If you used a home equity loan to cover improvements to your home, your mortgage is considered a mixed-use mortgage by the IRS.

Here’s how to claim home equity loan interest:

  1. You’ll receive a Mortgage Interest Statement Form 1098 at the beginning of each year from your lender.
  2. If you have deductible home mortgage interest or points reported on Form 1098, then deduct it on your Schedule A (Form 1040), line 8a.

If you hire a tax preparer, inform the preparer about any possible deductions or tax credits you should qualify for and provide them with the documentation.

What about HELOC interest?

Whether you took on a home equity loan or home equity line of credit (HELOC), the IRS treats them equally in terms of interest. Both are considered mixed-use mortgages.

Tax deductions are a perk; not the sole reason to get a home equity loan

Don’t get us wrong, tax deductions are great, but getting a home equity loan for the sole purpose of getting tax deductions may not be the best idea. And remember — tax deductions aren’t guaranteed.

Most homeowners get a home equity loan to improve their home, and the tax deductions are just a sweet bonus. The same goes for a home equity line of credit (HELOC).

There are big risks when it comes to home equity loans and HELOCs. For starters, your home is used as collateral for the loan and if you default, you could lose the house. Secondly, the interest rate on home equity loans is variable, meaning it could change, unlike a fixed rate mortgage.

And one of the biggest risks is that you’re reducing the hard-earned equity in your home. If your home’s value depreciates, you risk being upside-down — meaning you could end up owing more than your house is worth.

Compare current home equity loan rates

Use our tool to get personalized estimated rates from top lenders based on your location and financial details. Select Home Equity Loan, enter your ZIP code, credit score and information about your current home to see your personalized rates.

Bottom line

Tax deductions are great, but taking on a home equity loan is a big decision with some major risks. Consider home equity loans or HELOCs if you have a good amount of equity in your home, when home values are somewhat stable and you’re sure you’re not overspending.

Read our overview on home equity loans to learn more and start comparing lenders and lending marketplaces that fit your situation.

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