Is HELOC interest tax deductible in 2026? Only if you improve the home

8 min read · LenderMatch Learn

HELOC interest is tax deductible in 2026 only if you used the money to buy, build or substantially improve the home that secures the line, your total qualifying mortgage debt is $750,000 or less ($375,000 if married filing separately), and you itemize deductions. Interest on money used for anything else, such as paying off credit cards or buying a car, is not deductible as mortgage interest. The same rule applies to home equity loans.

Some articles written before mid-2025 say the broader deduction returns in 2026. It doesn't. The One Big Beautiful Bill Act, signed July 4, 2025, removed that end date. Below is what the law says, a worked example showing when the deduction actually saves money, and how cash-out refinances are treated. If a renovation is what you are planning, comparing HELOC offers is the step that comes before any of this.

This article is general information about federal income tax, not tax advice. Ask a tax professional about your situation, including your state's rules.

Is HELOC interest tax deductible in 2026?

Yes, if the money went into the home. The rule comes from section 163(h)(3) of the Internal Revenue Code, which defines deductible "qualified residence interest." It has two categories:

• Acquisition indebtedness: debt "incurred in acquiring, constructing, or substantially improving" your main or second home, and secured by that home.
• Home equity indebtedness: any other debt secured by the home, regardless of how you spend it.

For tax years beginning after December 31, 2017, the law says the home equity category "shall not apply." So a HELOC only produces deductible interest when it counts as acquisition debt. IRS Publication 936 (2025) puts it plainly: interest on home equity loans and lines of credit is deductible "only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan."

The name on the loan does not matter. The IRS said in 2018 that the deduction can apply to a home equity loan, a HELOC or a second mortgage "regardless of how the loan is labelled." What matters is how you used the money.

What changed with the 2025 tax law?

The 2017 Tax Cuts and Jobs Act suspended the home equity interest deduction for 2018 through 2025, and it was scheduled to come back in 2026. Section 70108 of the One Big Beautiful Bill Act (Public Law 119-21) struck the words "and before January 1, 2026" from the statute, for tax years beginning after December 31, 2025. The result:

• Before 2018: interest on up to $100,000 of home equity debt was deductible however you spent it, and the acquisition debt limit was $1 million.
• 2018 through 2025: home equity interest deductible only for buy, build or improve; acquisition debt limit $750,000.
• 2026 and later: the 2018 rules continue, with no end date in the law.

Is HELOC interest tax deductible for home improvements?

Yes, when the work counts as a substantial improvement. Publication 936 says an improvement is substantial if it adds to the value of your home, prolongs its useful life, or adapts it to new uses. A new roof, an addition or a kitchen remodel typically fits. Repairs that only maintain the home, such as repainting, do not, unless the painting is part of a larger renovation that substantially improves the home.

Two details catch people:

• It has to be the same home. The improved home must be the one securing the loan. A HELOC on your main home used to renovate a vacation home does not qualify.
• Timing. If you borrow before the work is finished, Publication 936 counts improvement costs from the 24 months before the loan date. If you borrow within 90 days after the work is done, it counts costs from the 24 months before completion through the loan date.

What HELOC uses are not tax deductible?

Interest on money used for personal expenses is not deductible as mortgage interest. The IRS's own examples include paying off credit cards and student loans. Using a HELOC on your main home to buy a vacation home also fails, because the vacation home is not the property securing the loan.

Rentals and businesses are a separate case. If you used HELOC money for a rental property, a business or an investment, Publication 936 says that share of the interest may be deductible as a rental, business or investment expense instead, on a different schedule and under different limits.

The $750,000 mortgage debt limit

The limit covers all acquisition debt on your main home and second home combined: your first mortgage plus any HELOC used to improve the home. It is $375,000 if you are married filing separately. Debt taken out before December 16, 2017 keeps the older $1 million limit.

The IRS's example: a $500,000 mortgage to buy a home plus a $250,000 home equity loan to build an addition totals $750,000, so all of the interest is deductible. If you are over the limit, only part of the interest is deductible, and Publication 936 has a worksheet for that.

Worked example: does the deduction actually save you money?

Mortgage interest only helps if you itemize, and you only itemize when your itemized deductions beat the standard deduction. For tax year 2026, that is $32,200 for married couples filing jointly, $24,150 for heads of household and $16,100 for single filers (IRS, October 9, 2025).

Take two married couples. Each draws $60,000 on a HELOC in January 2026 for a kitchen remodel, at an example rate of 8.00% (prime of 7.00% as of October 20, 2026, plus a 1.00% margin), and pays about $4,800 in interest for the year. Both have taxable income in the 22% bracket ($100,800 to $211,400 for joint filers in 2026), and both are well under the $750,000 debt limit.

Couple A has an older, smaller mortgage. Even with the HELOC interest, their itemized total is $8,400 short of the standard deduction, so they take the standard deduction and the HELOC interest saves them nothing.

Couple B itemizes. The $4,800 of HELOC interest lowers their taxable income by $4,800, which at 22% is $1,056 less federal tax. Had they used the same $60,000 to pay off credit cards, that interest would not count, and they would lose the $1,056.

For Couple B, the deduction trims the real cost of the line from 8.00% to roughly 6.24% (8.00% × 0.78). Use the HELOC payment calculator for the monthly cost, and how a HELOC works for the draw and repayment periods.

Is cash-out refinance interest tax deductible?

Partly, depending on how you use the cash. Publication 936 says a refinance counts as acquisition debt only up to the balance of the old mortgage just before the refinance. Any extra cash counts only if it is used to buy, build or substantially improve the home.

Example: you refinance a $200,000 balance into a $260,000 loan, then spend $40,000 on an addition and $20,000 on credit cards. Interest on $240,000 can qualify. Interest on the $20,000 does not. The same logic covers a HELOC used to pay off your first mortgage: it can count as acquisition debt up to the balance it replaced.

Points work differently too. Points paid to refinance are generally deducted over the life of the loan, though the part tied to improving your main home may be deductible in the year paid if you meet the IRS tests. Cash-out refinance vs HELOC compares the two loans on cost.

How to claim the deduction

1. Get Form 1098 from your lender. It shows the interest you paid. It does not show how you used the money; that part is on you.
2. Keep records of where the money went. Contracts, invoices and receipts that tie the draws to the improvement.
3. Itemize on Schedule A (Form 1040). Interest reported on Form 1098 goes on line 8a, according to Publication 936.

Frequently asked questions

Is home equity loan interest tax deductible in 2026?

The same rule applies as for a HELOC. Interest is deductible only if the money was used to buy, build or substantially improve the home that secures the loan, your qualifying mortgage debt is within the $750,000 limit, and you itemize. The IRS says the label on the loan does not matter.

Will the old home equity interest deduction come back?

Not under current law. Before July 2025, the broader deduction was scheduled to return in 2026. The One Big Beautiful Bill Act removed that end date, so the buy, build or improve rule continues with no expiration. Congress could change it in a future law.

What if I used part of my HELOC for a remodel and part for other bills?

Only the interest on the part used for the improvement can count as deductible mortgage interest. IRS Publication 936 explains how to split interest on a mortgage used for more than one purpose. Keep records that show where the money went.

Can I deduct HELOC interest if I used it for a rental property or a business?

Not as home mortgage interest. But if you used the money for a rental, a business or an investment, IRS Publication 936 says that share of the interest may be deductible as a rental, business or investment expense instead, on a different schedule and subject to its own limits.

Is HELOC interest deductible on a second home?

It can be, if the line is secured by that second home and the money is used to buy, build or substantially improve it. The $750,000 limit covers your main home and second home combined. A HELOC on your main home used to buy a vacation home does not qualify.

Do I have to itemize to deduct HELOC interest?

Yes. Mortgage interest is deducted on Schedule A, so it only lowers your tax if your itemized deductions add up to more than your standard deduction. For 2026 that is $32,200 for married couples filing jointly and $16,100 for single filers.

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