If you took out a home equity loan and you’re wondering whether you can deduct the interest, the short answer is sometimes.
The longer answer comes down to three things:
- What you used the money for
- Which home secured the loan, and
- Whether you itemize on your tax return.
The rules have changed a few times over the years, so before you assume you can write off your interest, it’s worth knowing what actually applies right now.
How Home Equity Loan Interest Works
A home equity loan is a second loan secured by the equity you’ve built in your home. You receive a lump sum and pay it back in fixed monthly installments, with interest charged on the remaining balance.
Because the loan is secured by your home, the rate tends to be lower than what you’d pay on a credit card or personal loan. But the interest still adds up over the life of the loan. That’s why deductibility matters.
If the IRS lets you write it off, you can lower your taxable income at tax time. If it doesn’t, you’re paying that interest entirely out of pocket.
Why the Rules Look the Way They Do (What Changed in 2025)
Before 2018, home equity loan interest was broadly deductible regardless of how you used the money. The Tax Cuts and Jobs Act of 2017 changed that, restricting the deduction to loans used to buy, build, or substantially improve the home that secures them. Those restrictions were set to expire at the end of 2025, and a lot of homeowners and writers expected the old, looser rules to come back.
That didn’t happen. The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, made the TCJA restrictions permanent under current law. The “buy, build, or substantially improve” rule still applies for the 2025 tax year and continues into 2026 and beyond, unless Congress changes things again.
Three Things That Have to Line Up
To deduct the interest on a home equity loan, your situation has to clear all three of these. Miss any one, and there’s no deduction.
1. The money has to have gone toward the home.
Specifically, toward buying, building, or substantially improving the home that secures the loan. The IRS frames “substantial improvement” in Publication 936 as work that adds value to the home, prolongs its useful life, or adapts it to a new use. Routine maintenance and cosmetic touch-ups don’t count.
In practice:
- What usually qualifies: adding a room, remodeling a kitchen or bathroom, replacing a roof, installing a new HVAC system, accessibility upgrades
- What typically doesn’t: paying off credit cards, tuition, medical bills, vacations, a new car, repainting, or fixing a broken garbage disposal
Spending that grows your home’s value or extends its life tends to count. Spending that goes anywhere else, even if the loan is technically secured by your home, doesn’t.
2. The loan and the improvement have to point at the same home.
The home you borrow against has to be the same home you’re improving.
Let’s say you take out a home equity loan on your primary residence and use it to renovate a beach cottage you own as a second home. The renovation is real, the cottage is a qualifying home in its own right, and the loan is secured by real estate. Sounds like it should qualify, right? Except the loan is secured by the primary residence, but the money was spent on a different property.
If you had taken the loan against the cottage and used it to renovate that same cottage, the interest would potentially qualify, because the cottage is a qualifying second home, and the collateral and the spending now match.
3. You have to itemize.
Even if you check the first two boxes, the deduction only helps if your total itemized deductions beat the standard deduction. That’s a high bar.
According to the IRS, the 2026 standard deduction is $32,200 for married filing jointly, $16,100 for single or married filing separately, and $24,150 for head of household. A homeowner paying $5,000 a year in home equity loan interest, plus first mortgage interest and property taxes, may still come out better taking the standard deduction. Add up your itemized totals, compare them to the standard deduction for your filing status, and see which one wins.
The Debt Cap
Even when you clear all three rules, there’s a limit on how much qualifying debt the deduction covers. For loans taken after December 15, 2017, the IRS caps it at the first $750,000 of combined home acquisition debt ($375,000 if married filing separately). Older loans may sit under a grandfathered $1 million limit. The cap covers your first mortgage and any home equity loans together.
What Happens With a Mixed-Use Loan
Plenty of homeowners borrow against their home and use the money for more than one thing. Maybe half goes to a kitchen remodel, and half goes toward paying off credit card balances. The IRS handles this proportionally. Only the share of interest tied to the qualifying use is potentially deductible. So if 60% of the loan paid for the kitchen, only 60% of the interest is in play. If you can’t show which dollars went where, the IRS won’t guess in your favor.
Form 1098 and Recordkeeping
If you paid $600 or more in interest during the year, your lender will typically send you Form 1098. Many homeowners assume that getting a 1098 is proof that the interest is deductible. It isn’t. The form only reports what was paid. The IRS still expects you to confirm that the proceeds went toward a qualifying use on a qualifying home.
Keep loan statements, contractor invoices, receipts for materials, and any contracts. If you’re ever asked to back up the deduction, those records may be needed.
Lo esencial
Home equity loan interest is deductible when the money went into the home that secures the loan, when your combined mortgage debt fits under the cap, and when itemizing actually beats the standard deduction.
