How HELOCs Affect Your Taxes
When you take out a mortgage, you can generally deduct the amount of money you pay on mortgage interest from your taxable income. But is a home equity line of credit (HELOC) interest tax-deductible, too? Put simply, it depends on when you took out the HELOC, what you used the funds for, and how much mortgage debt you have.
Here’s what you need to know about HELOC tax deductions, including the requirements and limitations on HELOC tax-deductible expenses, plus how to calculate your deduction.
Table of Contents
- What Is a HELOC?
- How Does a HELOC Affect Your Taxes?
- Requirements for the HELOC Interest Tax Deduction
- HELOC Tax Deduction Purchase Limits
- Tax Deduction Limits on Primary Mortgages
- Is Home Equity Loan Interest Tax-Deductible?
- How to Calculate a HELOC Interest Tax Deduction
- How to Deduct Home Equity Loan Interest
- Does a HELOC Affect Property Taxes?
- The Takeaway
- FAQ
- Key Points
- • Mortgage interest is only deductible if you use the funds to buy, build, or substantially improve the qualified primary or secondary home that secures the loan.
- • Personal expenses and money you spend on general maintenance or repairs that don’t add value or extend the life of your home aren’t deductible.
- • You can only deduct interest on up to $750,000 of your total mortgage debt ($375,000 for married taxpayers filing separately).
- • Keeping detailed records and receipts to prove you used the money for qualifying home improvements is essential.
- • You must file Internal Revenue Service (IRS) Form 1040 and itemize your deductions on Schedule A.
What Is a HELOC?
Whether to cover renovation costs or consolidate debt, homeowners can borrow against the value of their home to secure the necessary funding. There are two main types of home equity loans: a conventional home equity loan and a HELOC. A HELOC functions as a revolving line of credit that uses home equity — the home’s value minus the amount you still owe on the primary mortgage — as collateral.
How much you can borrow typically ranges from 80%-90% of your home equity. Generally, lenders require a minimum of 15%-20% equity in your home to be eligible for a HELOC.
When comparing a HELOC vs. a home equity loan, a key difference is that a HELOC allows you to draw funds as you need them, up to a maximum limit, over a draw period (often 10 years). By contrast, home equity loans disburse funds all at once.
With HELOC loans, you pay interest only on the amount you withdraw. Once the draw period ends, any remaining borrowed funds and interest are repaid over a repayment period, which can vary but typically spans 10-20 years.
Recommended: What Is a Home Equity Line of Credit?
How Does a HELOC Affect Your Taxes?
The interest paid on a HELOC could qualify as a tax deduction to lower your taxable income. If you own a home and plan to claim a HELOC tax deduction, there are some requirements and limitations to keep in mind. It’s important to consult with your tax advisor on your specific situation.
Requirements for the HELOC Interest Tax Deduction
To answer the question, “Is interest on a HELOC tax-deductible?” it’s essential to check whether you meet certain requirements set by the IRS.
Since the Tax Cuts and Jobs Act of 2017, there are stricter requirements for how funds must be spent to be eligible for a HELOC tax deduction. Specifically, funds from a HELOC must be used to buy, build, or substantially improve a qualifying home — either a primary or second home that secures the loan. Eligible expenses can range from rewiring a house to replacing a roof or remodeling a kitchen. Note that funds must be spent on the same property used to secure the HELOC.
It’s also required that you have positive equity in the home used to secure the HELOC. If you have an underwater mortgage, meaning you owe more on the home than its value, you’re generally not eligible for a HELOC tax deduction.
These requirements are in place for tax years 2018-2025. Prior to the rule change, a HELOC tax deduction could be made for interest paid on debt used for any type of personal expenses, not just home improvements.
Recommended: Cash Refinance vs Home Equity
HELOC Tax Deduction Purchase Limits
HELOC tax deductions aren’t unlimited. So up to what amount are HELOC loans tax-deductible?
The IRS allows you to deduct interest on a maximum of $750,000 in residential loan debt (or $375,000 if you’re married and filing separately), including the primary mortgage and a HELOC. For instance, if you had $700,000 left on a home mortgage loan and $150,000 in HELOC debt, you could only deduct interest on the first $750,000 of debt.
If your primary mortgage or HELOC was approved before the 2018 tax year, you may be eligible to claim interest up to the previous limit of $1 million (or $500,000 if you’re married and filing separately). Borrowers who took out a HELOC in 2017 or earlier should note that the rule change did away with the $100,000 limit (or $50,000 if you’re married and filing separately) on home equity debt for tax deductions.
Tax Deduction Limits on Primary Mortgages
The tax deduction limits on primary mortgages are based on when the mortgage loan was taken out.
If you took out a mortgage on or before October 13, 1987, there’s no cap on mortgage interest tax deductions. Homebuyers who got a mortgage between October 13, 1987, and December 16, 2017, can deduct interest on up to $1 million in total mortgage debt for married couples filing jointly and single filers. The limit is $500,000 for married couples filing separately.
If you took your mortgage out after December 15, 2017, you could deduct up to $750,000 (or $375,000 if you’re married and filing separately).
These limits apply to all combined mortgage debt, including first homes, second homes, and HELOC loans.
Is Home Equity Loan Interest Tax-Deductible?
The tax deduction rules for home equity loan interest are the same as those for a HELOC. As long as you’re using funds to buy, build, or substantially improve a home, you can claim a tax deduction on mortgage debt up to $750,000.
Recommended: What Is a Home Equity Loan?
How to Calculate a HELOC Interest Tax Deduction
Prior to filing taxes, you should receive IRS Form 1098 from your HELOC and mortgage lenders. This form indicates the interest you paid on your HELOC, primary mortgage, or home equity loan in the previous year.
If you used any HELOC funding for ineligible uses, such as personal expenses or debt consolidation, you’ll need to subtract that portion to get the deductible interest.
Besides the interest you paid on your primary mortgage and HELOC loan, add up other deductions, such as property taxes, mortgage points, and student loan interest. Since you can only deduct mortgage and HELOC interest payments with an itemized deduction, it’s important to check that the total of your deductions exceeds the standard deduction amount.
Here are the standard deduction amounts for tax year 2025:
- • Single or married filing separately: $15,750
- • Married filing jointly or qualifying surviving spouse: $31,500
- • Head of household: $23,625
If the mortgage and HELOC interest, plus other tax deductions you’re eligible for, exceed the above amounts, then consider itemizing.
Recommended: Personal Line of Credit vs HELOC
How to Deduct Home Equity Loan Interest
To deduct home equity loan interest, you’ll need to gather any receipts or invoices documenting how the money was spent. Be sure to keep records of transactions for eligible home renovations and improvements to verify your deductions in case you’re audited by the IRS.
Once you’ve compiled all the necessary documentation, you’ll itemize your deductions using Schedule A (Form 1040).
Does a HELOC Affect Property Taxes?
While the amount you take out through a HELOC won’t affect your property taxes, the improvements you make to your home could potentially increase the value of your home. If your renovation is substantial and involves a permit, it may change the appraised value and potentially increase your property taxes.
The Takeaway
You can deduct the interest paid on your HELOC if the funds are used to buy, build, or substantially improve your home. HELOC tax deductions must be itemized, and they’re only allowable for the first $750,000 in mortgage debt on qualifying primary and secondary residences.
SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.
FAQ
Do you report a HELOC on your taxes?
You must report your home equity line of credit (HELOC) interest on your taxes if you’re claiming an itemized deduction and you used the loan to build or improve your home. Note that since the Tax Cuts and Jobs Act of 2017, there are stricter requirements for how funds must be spent to be eligible for a HELOC tax deduction.
Will a HELOC appraisal raise my taxes?
No, a home equity line of credit (HELOC) appraisal won’t raise your taxes. Property taxes are based on the appraised value of your home by your local government.
Does a HELOC affect capital gains tax?
No, a home equity line of credit (HELOC) generally doesn’t affect capital gains tax on a home sale. The Internal Revenue Service (IRS) views the loan as a liability rather than an increase in your cost basis.
Photo credit: iStock/damircudic
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.
SOHE-Q126-083
Read more