Is Home Equity Loan and HELOC Interest Tax-Deductible?
Some or all of the mortgage lenders featured on our site are advertising partners of NerdWallet, but this does not influence our evaluations, lender star ratings or the order in which lenders are listed on the page. Our opinions are our own. Here is a list of our partners.
When you borrow against your home’s equity, there may be a bonus: The interest you pay every year is tax-deductible up to a government-imposed limit, as long as the borrowed money goes toward improving your home.
at Next Door Lending LLC
*This is to give you notice that NerdWallet Compare, Inc. (“NW Compare”), and its parent company, NerdWallet, Inc. (“NerdWallet”), have a business relationship with Next Door Lending, LLC (“Next Door Lending”), which is a wholly owned subsidiary of NerdWallet. Because of these relationships, any referrals of you to Next Door Lending by any NerdWallet company may provide the referring company and its direct or indirect parent company with a financial or other benefit. You are NOT required to use Next Door Lending to obtain access to any settlement service. THERE ARE FREQUENTLY OTHER SETTLEMENT SERVICE PROVIDERS AVAILABLE WITH SIMILAR SERVICES. YOU ARE FREE TO SHOP AROUND TO DETERMINE THAT YOU ARE RECEIVING THE BEST SERVICES AND THE BEST RATE FOR THESE SERVICES.
HELOC and home equity loan interest deduction rules
Home equity loans and home equity lines of credit, or HELOCs, are different products, but the rules are the same for deducting interest.
Here are the main two rules:
The interest is deductible only if the borrowed money was spent to "buy, build or substantially improve" the home securing the loan, the IRS says. You can't deduct the interest if the home equity proceeds were spent on other things, such as college tuition or a car.
Only interest up to a certain amount of mortgage debt is deductible. The limit applies to the combined amount of all loans secured by a property, including primary mortgages and home equity loans or HELOCs. And the limit varies depending on when you took on the debt:
Dec. 16, 2017, and later: You can deduct the interest on up to $750,000 of mortgage debt (or up to $375,000 if you're married and filing separately).
Oct. 14, 1987, through Dec. 15, 2017: You can deduct the interest on up to $1 million of mortgage debt ($500,000 if married and filing separately).
Oct. 13, 1987, or before: You can deduct all the mortgage interest.
The IRS provides more detail on its website about the rules for deducting mortgage interest.
With a home equity loan, you borrow a lump sum over a set term at a fixed interest rate. With a HELOC, you can access cash as needed up to the credit limit during the "draw period." Typically, you pay only interest at a variable rate during this time, and then repay the borrowed money plus interest in the repayment phase.
» MORE: Tax deductions for homeowners
Itemizing or taking the standard deduction
To deduct the interest paid on your home equity loan (or your HELOC), you’ll need to itemize deductions at tax time using IRS Form 1040.
Itemizing is worth doing only if all your deductible expenses total more than the standard deduction. The standard deduction — a flat dollar figure set annually by the IRS — varies according to tax-filing status. The standard deduction for the 2023 tax year (for taxes due in April 2024) is:
$27,700 for married couples filing jointly.
$13,850 for single filers or married people filing separately.
$20,800 for heads of households.
To decide whether to itemize or take the standard deduction, add up all your tax-deductible expenses. Besides mortgage interest, those may include other costs related to homeownership, such as property tax, and other outlays, such as charitable gifts.
Collect the right tax forms from your lender
Before tax time, you should receive an IRS Form 1098, or Mortgage Interest Statement, from your lender or lenders. It shows the interest you paid on your primary mortgage, home equity loan or HELOC in the previous year. You'll need this form if you want to deduct the interest on your home equity loan or line of credit. Call your lender if you don’t get a 1098 or if you want help in understanding it.
