6 min read · Last updated October 26, 2026
- Interest on a home equity line of credit (HELOC) is deductible only for the share of the draw spent to buy, build, or substantially improve the home that secures the loan, per Internal Revenue Service (IRS) Publication 936.
- The combined cap on acquisition debt, meaning your first mortgage plus any HELOC dollars spent on the home, is $750,000 for loans taken out after December 15, 2017, or $1 million if your debt is grandfathered from before that date.
- Spend part of a HELOC on anything else, a card payoff, a car, tuition, and that portion’s interest is not deductible at all, even though it sits in the same loan and the same monthly statement.
- Your 1098 form does not separate deductible interest from non-deductible interest. You need your own records showing what each dollar paid for.
A home equity line of credit’s interest is deductible only for the dollars spent to buy, build, or substantially improve the home securing it. The rest is treated as home equity debt, and current law does not let you deduct home equity debt interest at all, regardless of your income or how the loan is secured.
In this article
- What makes HELOC interest tax deductible
- The $750,000 cap, and who is grandfathered
- A $60,000 HELOC split two ways
- The records you need before you file
- Frequently asked questions
What makes HELOC interest tax deductible
The IRS does not ask what kind of loan you have. A HELOC, a home equity loan, and a second mortgage are all treated the same way for this test. What matters is what the money paid for.
IRS Publication 936 draws one line. Money spent to buy a home, build a home, or substantially improve the home that secures the loan counts as acquisition debt, and its interest is deductible up to the cap below. Money spent on anything else, even if it is secured by the same house, is home equity debt, and its interest is not deductible under current law.
“Substantially improve” has a real meaning here. A new roof, an addition, a kitchen remodel, or a repiped plumbing system qualifies. Routine repairs, a paint job, or general maintenance does not, because those do not add value or extend the home’s useful life the way the rule requires.
The $750,000 cap, and who is grandfathered
Your acquisition debt is everything that qualifies under the test above: your first mortgage balance plus any HELOC dollars spent on the home. The IRS’s own topic page on deductible mortgage interest calls this combined category home acquisition debt, and it is capped at $750,000 for a single filer or a married couple filing jointly, or $375,000 if you are married and filing separately.
There is one exception. If your mortgage debt was fully in place before December 16, 2017, you keep the older $1 million cap ($500,000 if married filing separately) on that original balance, even after a later refinance, as long as the new loan does not exceed the old principal. A HELOC taken out today does not get grandfathered in just because your first mortgage was.
A $60,000 HELOC split two ways
Say you open a $60,000 HELOC against a home with a $420,000 first mortgage. You spend $40,000 on a kitchen remodel and $20,000 paying off a credit card.
The $40,000 kitchen portion is acquisition debt. It brings your total acquisition debt to $460,000, well under the $750,000 cap, so its interest is fully deductible.
The $20,000 card-payoff portion is home equity debt. Its interest is not deductible at all, no matter your income or your filing status. If you are weighing a HELOC against a cash-out refinance for a project like this one, the deductibility gap above is one more factor in that decision, not just the rate.
At a sample rate of 8.5% (your own rate will differ by lender and index), a full year of interest-only payments on the $60,000 balance runs $5,100. Two-thirds of that balance, the kitchen portion, produced $3,400 of deductible interest. The remaining third, the card-payoff portion, produced $1,700 that you cannot deduct, even though it came out of the same account on the same statement.
The records you need before you file
Your lender’s Form 1098 reports total interest paid on the loan. It does not know, and does not report, which dollars went to the kitchen and which went to the card. That split is on you to document and keep.
Save the contractor invoices, receipts, or draw requests that show what each withdrawal paid for, and keep them with your tax records for as long as the IRS can audit that return. If an itemized draw can’t be tied to a buy-build-improve use with a receipt, treat it as home equity debt and leave its interest off your return.
This matters just as much once your HELOC’s draw period ends and you move into repayment, since the same records still have to back up whichever share of the balance you are claiming. Claiming a deduction you cannot document is the kind of thing that surfaces in an audit years after the return was filed, not at the time you file it.
Frequently asked questions
Does it matter that my HELOC and first mortgage are with different lenders?
No. The acquisition-debt test looks at what the money paid for, not which lender holds which loan. A HELOC from a credit union and a first mortgage from a bank are added together for the $750,000 cap the same way they would be if one lender held both.
What if I use the HELOC to pay off my mortgage instead of improving the house?
Refinancing acquisition debt into a new loan keeps that portion’s acquisition-debt status, as long as the new loan does not exceed the balance being refinanced. Any extra cash taken out on top of that refinance is home equity debt unless you can show it paid for a home improvement.
Can I deduct interest on a HELOC used for a rental property?
That interest may be deductible as a business expense against the rental’s income instead, under different rules than the home mortgage interest deduction. Ask a tax preparer how to classify it, since mixing personal-residence rules with rental-property rules on the same return is a common error.
Does refinancing my first mortgage affect my HELOC’s deductibility?
Not directly. Each loan is tested separately for what its proceeds paid for. Refinancing your first mortgage does not change whether your HELOC’s interest is deductible, but it can change your total acquisition debt, which matters if you are near the $750,000 cap.
Is the interest on a home equity loan treated differently than a HELOC?
No, the IRS applies the identical buy-build-improve test and the identical $750,000 combined cap to a home equity loan, a HELOC, and a second mortgage. The loan’s name does not change the rule. What the money paid for does.