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You may be able to take a home equity loan tax deduction when you file your federal income tax return if you follow IRS rules. This includes itemizing deductions and using the loan to buy, build, or improve your home. Home equity line of credit (HELOC) interest may also be tax-deductible under the same rules.
Find out if you qualify for these tax savings and learn how to claim the deduction if you do:
- Is the interest on my home equity loan tax-deductible?
- Rules for the home equity loan interest tax deduction
- How to claim the home loan interest tax deduction
- What you’ll need to claim the home loan interest tax deduction
Is the interest on my home equity loan tax-deductible?
Yes, interest on home equity loans is tax-deductible, but only if you use the loan to buy, build, or substantially improve a qualified home. Under IRS rules for deducting any kind of home loan interest, a “qualified home” may be your main home (primary residence) or second home (perhaps a vacation home, but only if you don’t rent it out).
Here are some examples of when you might be able to claim a tax deduction on your home equity loan:
- Buy: You buy a home and put less than 20% down. Instead of paying for private mortgage insurance (PMI), you take out a home equity line of credit as a piggyback loan.
- Build: You take out a home equity loan to build an accessory dwelling unit (i.e., an extra indoor living space with plumbing and electricity) in your backyard.
- Substantially improve: You use a home equity loan or HELOC to renovate your kitchen.
Important: If you use your home equity debt for another purpose — like paying off high-interest credit card debt, repaying student loans, or any other personal expense unrelated to your home — the interest is not tax-deductible.
See: Home Equity Line of Credit (HELOC): What It Is and More
Rules for the home equity loan interest tax deduction
The rules for deducting mortgage interest on your tax return are the same whether the loan is a first mortgage, second mortgage (home equity loan or line of credit), home improvement loan, or refinance loan.
Generally, you can claim a tax deduction for the interest you pay on up to $750,000 of home mortgage debt with any filing status except married filing separately. In that case, you can only deduct interest on up to $375,000 of home mortgage debt.
These limits went into effect for loans taken out on or after December 16, 2017 as part of the federal Tax Cuts and Jobs Act (TCJA). They will expire on the last day of 2025, unless Congress acts to extend or change them.
Check Out: Mortgage Refinance Tax Deductions Every Homeowner Should Know
What if I took out a home equity loan before the Tax Cuts and Jobs Act went into effect?
If you took out a home equity loan before the TCJA kicked in, you’ll have a higher limitation of $1 million (this limit is reduced to $500,000 if you’re married and file separately).
These old limits also apply to any mortgage debt refinanced after the TCJA, assuming you incurred the original debt before the TCJA kicked in. For instance, if you took out a home equity loan in 2015, and you refinanced it today, you would still qualify for the higher pre-TCJA limit. You just can’t claim the higher limit on any additional debt (like the cash-out portion of a cash-out refinance).
Learn the Difference: Home Equity Loan vs. Home Equity Line of Credit (HELOC)
How to claim the home loan interest tax deduction
You’ll need to follow these steps to claim a mortgage interest deduction on your federal income tax return.
- Gather your year-end mortgage statements. Each lender you have a home loan with should give you a mortgage interest statement (IRS Form 1098) in January to show you — and report to the IRS — how much interest you paid them during the previous tax year. This form will also show your loan origination date so you know which deduction limit applies. You may not receive this form if you paid less than $600 in interest.
- Calculate your total itemized deductions. You can only deduct home loan interest if you itemize deductions on your federal return. You can’t claim it if you take the standard deduction. Along with mortgage interest, many people itemize real estate taxes, personal property taxes, state and local income or sales taxes, and charitable donations. These expenses, combined with your mortgage interest, might make your total itemized deductions high enough to be worth claiming.
- Don’t forget about points. If you paid points to lower your interest rate, these are considered prepaid interest. They’ll be reported on Form 1098 and you may be able to deduct them.
- Decide which deduction to claim. You won’t come out ahead on your taxes unless your itemized deductions are higher than the standard deduction. It’s important to note that the standard deduction amount often changes from year to year. See the table below for the standard deduction by filing status for tax years 2021 and 2022.
|Filing status||2021 tax year||2022 tax year|
|Married filing jointly||$25,100||$25,900|
|Married filing separately||$12,550||$12,950|
|Head of household||$18,800||$19,400|
Unfortunately for many taxpayers, tax law makes it easier for single filers to benefit from itemizing their mortgage interest since their standard deduction is half that of married couples.
Filing a separate return if you’re married may help you itemize your home equity loan interest, but it could also penalize you in many other ways — for example, by preventing you from contributing to a Roth IRA. Most taxpayers won’t benefit from this tactic, so it’s best to speak with a tax professional beforehand if this is a move you’re considering.
Don’t Miss: The Tax Benefits of Owning a Home: Must-Know Deductions and Credits
What you’ll need to claim the home loan interest tax deduction
To claim a home equity loan interest deduction, you’ll need to itemize your deductions on Schedule A (Form 1040).
You’ll also need to save documents that substantiate your claim. You won’t submit them with your tax return, but you should keep them on file as proof of how much interest you paid and how you used the loan proceeds in case you’re ever audited. Here’s what to keep:
- 1098 forms from your home lenders
- Bank statements showing mortgage payments
- Your loan’s Closing Disclosure
- Receipts, invoices, and contracts for home renovations or construction expenses
While Credible doesn’t offer home equity loans, we can help you find a great rate on a cash-out refinance. In just a few minutes, you can see personalized, prequalified refinance rates from all of our partner lenders.