How to Claim Your Home Equity Interest Tax Deduction

You can claim a tax deduction on your home equity loan interest if the money was used to purchase or improve your home: here’s how to know if you qualify.
Written by Kathryn Mae Kurlychek
Reviewed by Melanie Reiff
You can claim a tax deduction on your home equity loan if the funds were used to “buy, build, or sustainably improve” your home. 
If you’ve recently taken out a home equity loan or home equity line of credit, you may be able to deduct the interest you paid on your tax return. But how do you know if you qualify, and is it worth the effort?
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What is a home equity loan?

A home equity loan is a financial credit extended to homeowners wherein the equity of your home (that is, the difference between what you owe and your home’s current values) is established as the collateral. 
Also called “equity loans” or “second mortgages,” home equity loans allow homeowners to receive a sum of money upfront, and pay it back over time in monthly installments. 
These loans can be used to help homeowners pay off or consolidate debt at a lower interest rate, finance personal or home improvement projects, or help cover the cost of an emergency expense. 
Depending on how your home equity loan is used, you may be able to deduct the interest from your taxes. 


A home equity line of credit—or HELOC—operates in the same way as a home equity loan in that your home is the loan collateral. However, HELOCs generally have variable interest rates (where home equity loans are fixed-rate) and are replenishable as you pay off the loan—kind of like a credit card. 

Is home equity loan interest tax deductible? 

Yes, under certain circumstances, your home equity loan interest is tax deductible. 
However, the money from your loan must be applied to buy, build, or sustainably improve the property used to source the loan, for it to qualify as tax-deductible. 

Tax Cuts and Jobs Act of 2017

The Tax Cuts and Jobs Act (TCJA) passed at the end of 2017 changed the rules around deducting interest on home equity loans and HELOCs from your taxes. 
Before 2017, much of the interest incurred on home equity loans was tax-deductible regardless of how the loan was spent—so whether you put toward a college debt or used it to help finance your wedding, you could deduct the interest. 
Now, however, the home equity loan interest is only tax-deductible if the money was used to purchase, renovate, or improve your current home. 
Joint filers who assumed a home equity loan or HELOC can deduct the interest on up to $750,000 worth of qualified loans under the TCJA. For single filers, the limit of interest deduction is up to $375,000
If your loan was taken out before December of 2017, the limits are even higher: joint filers can deduct interest on loans up to $1 million, and single filers can do so for up to $500,000

Determining if your home equity loan interest is tax deductible

If you used your home equity loan to buy, build, or sustainably improve your residence, you likely qualify to deduct interest on your loan from your annual taxes. Here’s what to check to be sure: 
  • Check your mortgages: Your first mortgage is the initial loan taken out to finance your home; your second mortgage is your home equity loan. For the interest to qualify as tax-deductible, your combined mortgage debt must not exceed $750,000 (or $1 million, if the loan was taken out before December 2017) nor the value of your residence
  • Itemize your deductions: You’ll want to make sure deducting interest from your home equity loan is worth your time—to do so, you’ll need to itemize your deductions. If the interest expenses on your loan do not exceed the standard deduction available to you, it may be better to forgo deducting it from your taxes and take the standard deduction instead. 
  • Determine your loan use: Was your loan applied toward the purchase of your residence? Or was it applied to home improvements that added property value? The IRS has no substantial guidelines on what projects qualify as “home improvement;” think add-ons, large-scale renovations, driveway repaving, landscaping, roof replacement, etc.

Prepare your tax documents

If you’re ready to deduct your home equity loan interest from your taxes, you’ll have to submit the following documents: 
  • Form 1098: Otherwise known as a Mortgage Interest Statement, this document should be provided by your bank or home equity loan lender.
  • Proof of funds: Be prepared with the receipts, invoices, statements, and/or reports documenting financial expenditures used to build or improve your home. You’ll need to be able to show how your loan funds were applied in a way that increased your property value. 
If you paid additional interest on your loan not reflected by your Form 1098, be sure to attach an additional statement showing the full amount of interest paid (and explaining the discrepancy). 

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The money you receive through a home equity loan or HELOC is considered a loan, and therefore not taxable as income. Some states may impose a mortgage recording tax, although it’s relatively uncommon.
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