As lending professionals, one of the most common questions we receive from homeowners considering Home Equity Line of Credit interest concerning tax implications: Is the interest I pay on my HELOC tax deductible? The answer, while straightforward in principle, involves important nuances that every homeowner should understand before tapping into their home’s equity. In this report we will clarify the current tax laws governing HELOC interest deductibility in 2026 and help you make informed borrowing decisions.
How HELOC Interest Deductibility Works in 2026
A Home Equity Line of Credit functions as a revolving line of credit secured by your home’s equity, similar to a credit card but with substantially lower interest rates. For homeowners who accessed their equity before 2018, the tax treatment of HELOC interest was relatively simple: interest was generally deductible regardless of how you used the borrowed funds, subject to certain dollar limitations (Internal Revenue Service, 2025).
However, the Tax Cuts and Jobs Act of 2017 fundamentally changed these rules, creating a framework that remains in effect through 2025. Understanding these changes is crucial for homeowners navigating the current tax landscape.
Current Tax Law: The 2026 Rules for HELOC Interest Deduction
As we progress through 2026, HELOC interest deductibility is governed by regulations that took effect in 2018.
According to the Internal Revenue Service, for tax years beginning after 2017, home equity loans or lines of credit secured by your main home or second home qualify for interest deductions only when the borrowed funds are used to “buy, build, or substantially improve” the residence that secures the loan (Internal Revenue Service, 2025).
This restriction represents a significant departure from previous law. Under current regulations, if you use HELOC proceeds to pay personal living expenses such as credit card debts, college tuition, medical bills, or vacation costs, the interest you pay is not deductible. The key determining factor is not the name of the loan product but rather how you actually use the borrowed money.
What Qualifies as “Substantially Improve”?
The IRS defines substantial improvements as those that add value to your home, prolong its useful life, or adapt it to new uses. According to industry experts at RefiGuide, projects that add value to your property—such as remodeling your kitchen, updating bathrooms, replacing the roof, or adding a new room—qualify as substantial improvements (RefiGuide, 2025).
However, routine maintenance and repairs do not meet this standard. For instance, fixing a leaky roof, replacing a water heater, or painting walls constitute normal upkeep rather than substantial improvements. While these expenses are necessary for maintaining your home, HELOC interest paid on funds used for these purposes does not qualify for tax deduction.
Dollar Limitations: Understanding the Cap
Even when your HELOC is used for qualified purposes, deduction limits apply based on your total mortgage debt. The Tax Cuts and Jobs Act reduced the mortgage interest deduction limit significantly for loans taken out after December 15, 2017.
For mortgages or HELOCs originated after this date, the IRS allows you to deduct interest on up to $750,000 of combined mortgage debt for married couples filing jointly, or $375,000 for those married filing separately (Internal Revenue Service, 2025). These limits apply to the combined total of your first mortgage and any home equity loans or HELOCs.
For loans taken out before December 16, 2017, higher limits remain in effect: interest is fully deductible on a combined mortgage and HELOC balance total of $1 million for single filers or married couples filing jointly, or $500,000 for married taxpayers filing separately.
Calculating Your Deductible Amount
Understanding how these limits affect your specific situation requires careful calculation. Consider this example: You have an outstanding mortgage balance of $700,000 on your primary residence, and you take out a HELOC for $100,000 to renovate your kitchen. Your combined mortgage-related debt totals $800,000, which exceeds the $750,000 deduction cap.
In this scenario, only $50,000 of your HELOC falls within the deductible debt limit, meaning that only half of the interest you pay on the HELOC would be eligible for tax deduction. This proportional calculation is essential for accurately determining your deductible interest amount.
The Itemization Requirement
To claim HELOC interest deductions, you must itemize deductions on Schedule A of Form 1040 rather than taking the standard deduction. This requirement represents a significant consideration, as the Tax Cuts and Jobs Act substantially increased standard deduction amounts.
For the 2025 tax year (returns filed in 2026), the standard deduction amounts are $15,000 for single filers and married individuals filing separately, and $30,000 for married couples filing jointly (Internal Revenue Service, 2025). Your total itemized deductions—including HELOC interest, mortgage interest, state and local taxes, and charitable contributions—must exceed these amounts for itemizing to provide tax benefits.
Many homeowners discover that even with deductible HELOC interest, their total itemized deductions fall short of the standard deduction, making itemization economically disadvantageous. This reality has reduced the practical tax benefit of HELOC interest deductions for many borrowers.
Documentation Requirements
If you qualify to deduct HELOC interest, proper documentation is essential. Your lender will provide Form 1098, Mortgage Interest Statement, which reports the total interest you paid during the tax year. However, you must also maintain detailed records proving you used the borrowed funds for qualified home improvements.
As lending professionals, we strongly advise clients to keep all receipts, contracts, bank statements, and other documentation showing how HELOC funds were spent. While you don’t submit these documents with your tax return, the IRS may request them if your return is selected for audit. The IRS recommends retaining tax records related to real estate for as long as you own the property, plus three years after filing a return reporting the property’s sale.
Special Considerations for Mixed-Use Scenarios
Homeowners often use HELOC funds for multiple purposes—some qualifying for deductions and others not. For example, you might use $30,000 from your HELOC to remodel your kitchen and another $10,000 to consolidate credit card debt. In such cases, only the interest attributable to the $30,000 used for home improvement is tax deductible.
This requirement demands meticulous record-keeping. You must track precisely how each dollar was spent to calculate the deductible portion accurately. RefiGuide emphasizes the importance of maintaining clear documentation showing the allocation of funds between deductible and non-deductible purposes.
Looking Ahead: What Tax Changes in 2026?
An important consideration for current HELOC planning involves the scheduled expiration of Tax Cuts and Jobs Act provisions. The current restrictions on HELOC interest deductibility are set to expire after December 31, 2025. If Congress does not extend these provisions, tax rules would revert to pre-2018 law, allowing HELOC interest deductions regardless of how funds are used, subject to dollar limitations (Internal Revenue Service, 2025).
However, Congress could extend or modify the Tax Cuts and Jobs Act before its expiration. Homeowners should monitor legislative developments and consult with tax professionals about potential changes that could affect their specific situations.
Professional Guidance: Why It Matters
The complexity of HELOC interest deductibility rules underscores the importance of working with qualified professionals. At BDnationwidemortgage.com, we recognize that maximizing the financial benefits of home equity borrowing requires understanding both lending and tax implications.
While this article provides general guidance on HELOC interest deductibility, individual circumstances vary significantly. We always recommend consulting with qualified tax advisors who can analyze your specific situation, considering factors such as your total mortgage debt, how you plan to use HELOC funds, your filing status, and whether itemizing deductions provides advantages over the standard deduction.
Strategic Use of HELOCs in 2026
Despite the restrictions on interest deductibility, HELOCs remain valuable financial tools for homeowners. They offer lower interest rates than credit cards or personal loans, provide flexible access to funds as needed, and can facilitate home improvements that increase property value beyond the cost of improvements.
The potential for tax-deductible interest represents an additional benefit when HELOCs are used appropriately for home improvements. However, this benefit should not be the sole factor driving your decision to access home equity. Consider the total cost of borrowing, your ability to repay the loan, and whether the improvements align with your long-term financial goals.
HELOC interest deductibility in 2026 depends primarily on how you use the borrowed funds. When used to buy, build, or substantially improve your home, HELOC interest may be deductible, subject to dollar limitations and the requirement to itemize deductions. However, interest on funds used for personal expenses, debt consolidation, or routine maintenance does not qualify for deduction.
Understanding these rules empowers homeowners to make strategic decisions about accessing home equity while maximizing potential tax benefits. As lending authorities, we’re committed to helping clients navigate both the borrowing and tax implications of HELOCs, ensuring informed decisions that support long-term financial wellbeing.
For personalized guidance on HELOCs and their tax implications specific to your situation, contact our experienced lending team at BDnationwidemortgage.com. We partner with qualified tax professionals to ensure you receive comprehensive advice tailored to your unique circumstances.
References
Internal Revenue Service. (2025). Publication 936 (2025), IRS home mortgage interest deduction.
RefiGuide. (2025). Are home equity loans tax deductible? RefiGuide.
Internal Revenue Service. (2025). Real estate (taxes, mortgage interest, points, other property expenses).