Are Home Equity Loans Tax Deductible? (2024 Guide)

The short answer is yes, the interest you pay on home equity loans can be tax-deductible. But it depends on how you use your loan.

You can use a home equity loan for many different reasons, including the following common ones:

• Debt consolidation, including credit card debt
• Home improvements
• Repairs and maintenance
• Wedding expenses
• Education costs
• Vacations
• Emergencies

Under the Tax Cuts and Jobs Act, the IRS allows homeowners to deduct interest paid on a home equity loan or home equity line of credit only if they used the funds for the house. This can include both necessary repairs as well as substantial cosmetic upgrades. These rules are in effect from tax year 2018 through 2025.

For example, if you used the funds to enclose a porch, you can deduct the interest. But, if you took the whole family to Disney World, the interest is not deductible.

There are other IRS rules you must meet to qualify for the deduction. If you rented out your home in the tax year, you must have personally lived there for more than 14 days or 10% of the days you rented it out, whichever is greater.

However, starting in 2026, you may be able to deduct home equity or home equity line of credit (HELOC) interest for a broader range of uses, which can include paying down credit card debt or other personal expenses. 

Remember, you can only deduct the interest, not the principal payments. For example, if your monthly payment is $500 with $400 going to the principal, you can only deduct the $100 worth of interest fees.

One of the most important factors in deducting interest on a home equity loan or HELOC is whether you take the standard deduction or itemize your deductions.

The standard deduction is a set amount that you can claim on your taxes to reduce your taxable income. For the 2023 tax year, the standard deduction is $13,850 for single filers, including individuals and married couples filing separately, $27,700 for married couples filing jointly and $20,800 for those filing as the head of household, according to the IRS.

If you want to itemize your deductions, you have to calculate the amount manually to determine your total itemized deductions. There is no limit on how much you can deduct in itemized deductions as long as all the expenses are accurate and legal.

While there is no rule that says when you can or cannot itemize your deductions, most taxpayers only itemize their deductions if their total itemized deductions are greater than the standard deduction.

Here are some common itemized deductions:

• Mortgage interest 
• Medical bills
• Charitable contributions
• Premiums for long-term care insurance

To claim a mortgage interest deduction on a home equity loan or HELOC, you must fill in the interest amount paid on Schedule A, Form 1040. Your home equity loan or HELOC provider should send you a Form 1098 to show how much you spent on interest.

When you receive the form, you should go through your bank statements and determine if the amount on the Form 1098 is accurate. Banks can make mistakes when calculating this figure, so it’s good to double-check. Do this as soon as possible because you will have to request an amended 1098 if there is an error.

Once you have the correct 1098 amount, copy it on your Schedule A, Form 1040, line 8a. If you use tax software to file your taxes, there will likely be a question that asks you how much you spent on mortgage interest.

If you use an individual or company to prepare your taxes, the tax professional may ask you if you paid any mortgage interest, either on a primary mortgage or a HELOC or home equity loan.

You cannot deduct interest on money borrowed for something other than home improvements for tax years 2018 through 2025. 

There are also instances when you cannot deduct the full amount of interest paid. The total mortgage debt cannot be more than $1,000,000 if you took the initial loan out between October 13, 1987, and December 15, 2017, or more than $750,000 if you took your loan out after December 15, 2017.

If you’re interested in taking out a home equity loan or HELOC, make sure you understand if you are eligible for a tax deduction before taking out the loan. Remember, there are several different criteria you must meet to qualify for a deduction. And even then, you may realize you’re better off taking the standard deduction instead of itemizing your deductions.

It may be helpful to speak with a tax accountant or specialist to understand your situation before taking out a home equity loan or HELOC. They can also help determine if your home repairs or remodeling projects are tax-deductible.

Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.