Are home equity loans and HELOCs tax deductible?

When you get a mortgage to buy a home, you can usually deduct the interest paid on that loan when filing your taxes. The answer to whether you can deduct interest on home equity loans and HELOCs is not as clear. You may be able to deduct some, all, or none of the loan amount.

The rules will depend on when you get the loan and how you use the loan funds. For tax years 2018–2025, interest is generally deductible only if you use the money to buy, build, or substantially improve the home securing the loan and your total mortgage debt stays within IRS limits. We’ll break down the rules for tax deductibility of home equity loans and HELOCs so you can figure out when interest qualifies, what changes in 2026, and how to claim the deduction.

Rocket Mortgage doesn’t offer HELOCs at this time, but we’re here for you to help you consider your options.

When is the interest on a home equity loan tax-deductible?

It is possible to deduct the interest on a home equity loan or HELOC. Under IRS rules, deductions are allowed for loans made prior to 2018 as well as loans issued between 2018 and 2025, so long as the equity you took out of your home was used to “buy, build, or substantially improve” the home.

The rules are set to change again for 2026 and beyond, allowing deductions regardless of how the proceeds of the loans are used.

Upcoming changes to home equity and mortgage interest deductions

The 2018 rule change that limited deductibility of home equity loans and HELOCs to loan funds used to improve the property was made as part of the Tax Cuts and Jobs Act (TCJA). This rule is set to expire at the end of 2025 (for taxes filed in April 2026).

That means that for loans issued in 2026 (filed in April 2027), the rules are set to revert so that loan interest is deductible no matter how the funds are used. If you want to get a home equity loan or HELOC, it may make sense to wait until 2026, if possible, so you can ensure the deductibility of interest.

However, keep in mind that Congress could extend or renew the TCJA, so keep an eye on the news.

Rules for deducting interest on a home equity loan

Mortgage interest deductions apply to all home loans, including purchase loans, mortgage refinances, home equity loans, and HELOCs. The TCJA, signed in 2017 and taking effect in 2018, limited deductions for home loan interest to loans where the money was used to “buy, build, or substantially improve” the home.

The TCJA is set to expire at the end of 2025, which would allow mortgage interest deductions regardless of how funds are used. However, Congress could opt to extend the law.

This is a summary of how loan interest can be deducted based on when the loan was issued.

• Before 2018: Interest deductible on home equity loans/HELOCs, no matter how the funds were used
• 2018 – 2025: Interest deductible only if used to buy, build, or improve a home
• After 2025: Interest deductible again, regardless of how funds are used

Tax Cuts and Jobs Act mortgage interest deduction limits

The TCJA also placed limits on the amount of interest you can deduct from your income. The limit is based on how much mortgage debt you have in total. This means that people with higher mortgage balances may not be able to deduct the full amount of interest on their loans.

These are the limits based on your filing status.

• Married filing jointly and single filers: $1 million reduced to $750,000 (home equity loan debt counts toward total)
• Married filing separately: $500,000 reduced to $375,000 (home equity loan debt counts toward total)
• Grandfathered loans: If you had a purchase contract before Dec. 15, 2017, and the loan closed before April 1, 2018, the old $1 million limits still apply

If your loan exceeds these limits, you can only deduct interest on the amount up to the

limit. For example, if you have an $800,000 mortgage and are married, filing jointly, you can only deduct interest charged on the first $750,000 of the loan.

Keep in mind that these limits are in addition to restrictions on how the funds are used, so you can’t deduct interest on home equity loans used for things like debt consolidation or education expenses.

TCJA rules example

This example illustrates how the TJCA affects home equity loan and HELOC interest deductibility.

Jane owns a home worth $500,000 and has a mortgage with a balance of $300,000. She wants to get a home equity loan for $100,000 to pay for a kitchen renovation.

Because the total balance of her mortgage and home equity loan is under the $750,000 limit and she plans to use the loan to improve her home, she can fully deduct the interest. If she wanted to use the home equity loan for other purposes, such as starting a business, she’d not be allowed to deduct the interest on the loan, but could continue to deduct interest on her initial mortgage.

How to deduct home equity loan interest

If you want to deduct interest on a home equity loan, follow these steps.

1.   Make sure your interest qualifies

Before you can deduct your home equity loan interest, you need to confirm whether you’re eligible. Consider these factors:

• Loan limits: For loans issued between 2018 and 2025, you can only deduct interest on amounts up to $750,000 if you’re single or married, filing jointly. The limit includes the balance of both your first and second mortgage. Loans prior to 2018 or after 2025 have a limit of $1 million.
• Qualifying home: Typically, interest is only deductible if the loan is on a primary or secondary residence. The home must also serve as collateral for the loan.
• Debt vs. home cost: You cannot take deductions on loan balances that exceed the home’s value plus the cost of improvements.
• Use of funds: For loans issued between 2018 and 2025, the funds must be used to buy, build, or improve the home.

2.   Collect your mortgage statements and other documents

If your home is eligible, the next step is to gather all of the documentation of your mortgage to show how much you borrowed. You should also keep receipts, contracts, and other documents that detail how the money was used so you can confirm the money was used to improve the home.

Be sure to include a copy of your closing disclosure and mortgage deed when filing your taxes.

3.   Itemize and calculate your deductions

Next, add up all of the allowable deductions, including mortgage interest and property taxes, to see how much you can deduct.

4.   Factor in your mortgage points

Mortgage points are a form of prepaid interest. You pay for points when you get your loan in exchange for a reduced interest rate, either by paying in cash at closing or rolling the amount into your mortgage balance.

You may be allowed to deduct the cost of points because they are an interest cost. Before doing so, confirm with your mortgage originator and a tax advisor.

Add the cost of points to the interest and property taxes you calculated above.

5.   Choose between a standard or itemized deduction

When filing your taxes, you can either itemize your deductions, which includes the mortgage interest deduction and many other costs you can deduct, or take the standard deduction. The standard deduction is a flat amount ($15,750 for single people and those who are married filing separately, $31,500 for those married filing jointly for tax year 2025) that you can deduct without having to provide documentation or an itemized list.

Check your Form 1098 from your lender to see if the mortgage interest deductions, plus any other deductions you’re eligible for, exceed the standard deduction. If they don’t, you can save more money on your taxes by taking the standard deduction and should not itemize.

FAQ

Before trying to deduct interest on a home equity loan or HELOC, make sure you understand the eligibility rules.

Can I deduct interest on a home equity loan or HELOC in 2025?

Yes, under the rules of the TCJA, you can deduct interest on a home equity loan or HELOC, but can only do so if your total mortgage balances are under the limit ($750,000 for most people) and you use the money for approved purposes.

What forms will I need to deduct my home equity loan interest?

To deduct home equity loan interest, you’ll need Form 1098 from your lender, which shows the amount of interest charged. You’ll also need receipts and documentation that shows you used the funds for eligible purposes.

Is there a way to prepare an itemized deduction on a second mortgage?

To itemize deductions and deduct interest on a second mortgage for tax years 2018 through 2025, you’ll need both Form 1098 and a way to show that you used the money for eligible purposes, such as home improvement. You may want to store receipts and other documentation in a spreadsheet, folder, or digital cloud for easy access.

The bottom line: Your home equity loan might be tax deductible

Mortgage interest on second loans, like home equity loans and HELOCs, may be tax deductible. Whether you can deduct interest depends on both when you got the loan and how you used the money, with rules being most restrictive for loans made between 2018 and 2025.

You also have to consider the size of the deduction, as the standard deduction may let you pay less income tax.

If you’re thinking about applying for a second mortgage, you can start an application with Rocket Mortgage^® today.

This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.