The rules changed significantly under the Tax Cuts and Jobs Act (TCJA), and the One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, made those stricter rules permanent. That means the "buy, build, or improve" test isn't going away anytime soon.
This guide breaks down exactly when HELOC interest is deductible, how much you can claim, what documentation you need, and how to file it correctly.
Key Takeaways
- HELOC interest is deductible only when funds buy, build, or substantially improve the home securing the loan
- The $750,000 combined mortgage debt limit is now permanent under OBBBA
- You must itemize on Schedule A to claim the deduction; the standard deduction does not apply
- Mixed-use HELOCs require separate recordkeeping for eligible vs. ineligible spending
What Is the IRS Rule on HELOC Interest Deductibility?
The current standard is straightforward: interest on a HELOC is deductible only if the funds are used to buy, build, or substantially improve the home securing the loan, according to IRS Publication 936. The debt also has to be secured by that same qualified residence—your main home or a second home.
This is a major shift from the old rules.
Before 2018 vs. Today
| Rule | Before 2018 | 2018–Present |
|---|---|---|
| Eligible use | Any purpose (debt consolidation, tuition, etc.) | Buy, build, or substantially improve only |
| Deduction cap | $100,000 ($50,000 if married filing separately) | Tied to combined mortgage limit |
| Home security requirement | Yes | Yes |
Before 2018, you could deduct interest on up to $100,000 of home equity debt regardless of how you spent it. That flexibility disappeared with the Tax Cuts and Jobs Act (TCJA). OBBBA has now locked in the stricter rule permanently instead of letting it sunset in 2026.
Which HELOC Uses Qualify for the Tax Deduction?
Not all home-related spending counts. The IRS draws a hard line between improvements and repairs.
Eligible "substantial improvement" uses include:
- Kitchen or bathroom remodels
- Room additions
- Roof or HVAC replacement
- New decks or major landscaping structures
Ineligible uses include:
- Debt consolidation
- Tuition or education costs
- Vacations
- Medical bills
- Buying a car
- Routine repairs or maintenance
Improvements vs. Repairs
IRS Publication 936 defines a substantial improvement as one that adds value, prolongs the home's useful life, or adapts it to new uses. Repairs that simply maintain the home, like repainting a room or fixing a leaky faucet, don't qualify.
If you use your HELOC for both a kitchen remodel and a family vacation, only the remodel portion is deductible. You'll need separate records showing exactly how much went where. Bank statements alone usually aren't enough. Keep contractor invoices and receipts tied to the improvement spending.
How Much HELOC Interest Can You Deduct? (Debt Limits Explained)
The current limit allows interest deductions on up to $750,000 of combined mortgage and HELOC debt ($375,000 if married filing separately). This applies to loans secured after December 15, 2017.
Thanks to OBBBA's Section 70108, this limit is now permanent. It will not revert to the old $1 million cap after 2026.
Grandfathered exception: Mortgages taken out before December 16, 2017 can still use the older, higher limits: $1,000,000 ($500,000 if married filing separately).
Worked Example
Say you have:
- A $675,000 first mortgage
- A $100,000 HELOC used entirely for renovations
Combined debt: $775,000, which exceeds the $750,000 cap by $25,000.
Only a proportional share of your interest is deductible. About 96.8% of the combined debt ($750,000 ÷ $775,000) falls under the limit, so you can deduct that same share of total interest paid, not the full amount.
Before you take a new HELOC or refinance, check whether the extra debt would push you over the threshold. ClearPoint Mortgage Advisors can review your current balances and help you weigh a HELOC or cash-out refinance against the deduction limits.
Do You Need to Itemize to Claim the Deduction?
Yes. HELOC interest only counts if you itemize deductions on Schedule A instead of taking the standard deduction.
2025 Standard Deduction Amounts
| Filing Status | Amount |
|---|---|
| Single | $15,750 |
| Married Filing Separately | $15,750 |
| Married Filing Jointly | $31,500 |
| Head of Household | $23,625 |
2026 Standard Deduction Amounts
| Filing Status | Amount |
|---|---|
| Single | $16,100 |
| Married Filing Separately | $16,100 |
| Married Filing Jointly | $32,200 |
| Head of Household | $24,150 |
Here's the math that matters. Add up these itemized deductions:
- Mortgage interest
- HELOC interest
- Property taxes
- Charitable gifts
If that total exceeds your standard deduction, itemizing pays off. If it doesn't, the HELOC interest write-off won't save you money. Take the standard deduction instead.
How to Claim the HELOC Interest Deduction (Step-by-Step)
Once you’ve confirmed the interest qualifies, claim it with these steps:
- Confirm eligibility. Compare how you actually spent HELOC funds against the buy/build/improve test. Be honest here—the IRS will be.
- Gather documentation. Your lender will send Form 1098 showing interest paid. Pair that with receipts and invoices proving how the money was spent.
- Run the itemization math. Add up all itemizable deductions and compare them with the standard deduction for your filing status.
- File using Schedule A (Form 1040). Report deductible interest on line 8a if it appears on your 1098, or line 8b if it doesn’t.
A Form 1098 does not make the interest deductible by itself. If the funds weren’t used to buy, build, or improve the home that secures the HELOC, that interest still isn’t deductible—1098 or not.
Mixed-use HELOCs get complicated fast. Consult a tax advisor or accountant before filing if you used funds for more than one purpose.
Common Mistakes That Can Disqualify Your Deduction
Small errors here can cost you the entire deduction:
- Losing receipts or invoices proving how HELOC funds were spent
- Mixing personal and home-improvement spending without separate records
- Assuming routine repairs qualify—painting or fixing an appliance isn't a "substantial improvement"
- Exceeding the $750,000 combined limit without realizing only a proportional amount of interest is deductible
Frequently Asked Questions
Can I deduct interest on my HELOC from my taxes?
Yes, but only if the funds were used to buy, build, or substantially improve the home securing the loan. You also need to itemize deductions on Schedule A to claim it.
Is HELOC interest deductible if I use it to pay off credit card debt?
No. Interest on funds used for debt consolidation doesn't qualify under current IRS rules, regardless of how the HELOC is secured.
What happens if my mortgage and HELOC together exceed $750,000?
Only interest on debt up to $750,000 is deductible. The interest tied to the excess amount isn't deductible.
Do I need Form 1098 to claim the deduction?
Your lender typically issues Form 1098 showing interest paid, which you'll use to complete Schedule A. If you don't receive one, you can still report deductible interest on line 8b.
Are HELOCs on second homes eligible for the interest deduction?
Yes, as long as the HELOC is secured by that second home and the funds are used to buy, build, or substantially improve that specific property.
Will the HELOC interest deduction rules change again in the future?
Under current law, the $750,000 limit and the buy, build, or substantially improve rule are permanent. Congress could still change the rules later, but there is no scheduled expiration.
