Is home equity loan interest deductible?

The rule in the publication’s own words

The Reminders at the start of Publication 936 state it plainly: no matter when the indebtedness was incurred, you can no longer deduct the interest from a loan secured by your home to the extent the loan proceeds were not used to buy, build or substantially improve your home. A note in Part I repeats the point for home equity loans and lines of credit: they are deductible only if the borrowed funds are used to buy, build or substantially improve the taxpayer’s home that secures the loan, and the loan must be secured by the taxpayer’s main home or second home and meet other requirements.

So the label “home equity” no longer decides anything. What the borrowed money paid for does. The same point appears in the instructions for reporting Form 1098: any interest shown in box 1 from a home equity loan, line of credit or credit card loan secured by the property is not deductible if the proceeds were not used to buy, build or substantially improve a qualified home.

What counts as using the money on the home

Buying, building and substantially improving are the three uses. An improvement is substantial if it adds to the home’s value, prolongs its useful life or adapts it to new uses; maintenance such as repainting is not. See the home improvement loan page for the definition and the 24-month and 90-day timing rules.

Loans that are part-and-part

Many home equity loans are used for mixed purposes. The publication calls a loan that consists of more than one of three categories (grandfathered debt, home acquisition debt and home equity debt) a mixed-use mortgage. You must figure a separate balance for each category for each month. The loan proceeds allocated to a category are reduced by the principal payments applied to that category, and principal payments are applied in full to each category until it reaches zero, in this order: first home equity debt not used on the home, then grandfathered debt, then home acquisition debt.

That order helps you. Paying down the loan reduces the non-qualifying part first, so the qualifying part stays at full balance for longer. The publication’s example is a $200,000 second mortgage taken on March 2, 2025, with $180,000 spent on substantial improvements and $20,000 on a car. Principal payments of $1,000 a month apply to the car portion, so through 2025 the $10,000 paid reduces only the non-qualifying $20,000. The home acquisition debt stays at $180,000 for March through December, with balances of zero in January and February, so its 2025 average is $150,000 ($1,800,000 divided by 12). In 2026 the publication shows the car portion reaching zero in October, so November and December payments begin reducing the home acquisition debt, which averages $179,750 for the year.

A rough estimate for a quick split

The calculator above is a simplification, not the publication’s method. It assumes no principal has been paid and divides the interest by the share of proceeds that went to the home. For $180,000 of improvements, $20,000 for a car and $10,000 of interest, it shows $9,000 following the improvement proceeds and $1,000 that does not. Real returns use monthly balances as above, so treat the figure as an estimate and check the lender’s statements.

Limits that still apply to the qualifying part

The home portion is home acquisition debt, so the combined mortgages on your main and second homes are limited to $750,000 ($375,000 if married filing separately) for debt secured after December 15, 2017, or $1 million ($500,000) for older debt, less grandfathered debt. See the acquisition debt page.

Could the interest be deductible somewhere else?

Interest on a secured loan that is not home mortgage interest is personal interest and is not deductible, unless the proceeds were used for business, investment or other deductible activities. In that case Publication 936 points to Table 2, which says where to deduct it: business interest on Schedule C, investment interest on Schedule A line 9, interest incurred to produce rents or royalties on Schedule E. The publication also lets you choose to treat a debt secured by your home as not secured by it, from that year on, which can be useful when the interest is deductible as a business expense anyway. That choice continues for all later years and can be revoked only with IRS consent.

Related rules

Reverse mortgage interest is generally treated as home equity debt interest and is not deductible. Points on a home equity loan, line of credit or credit card loan are not deductible when the proceeds are not used on the home. For payments, see the HELOC payment calculator; to see whether itemizing is worthwhile, use the whether itemizing beats the standard deduction.

Sources

• IRS Publication 936, Home Mortgage Interest Deduction (2025): “Home equity loan interest” reminder and “Mixed-use mortgages”, plus the Reminders, Table 1 and Table 2. Read November 2, 2026.

Edition read: Publication 936 (2025), for use in preparing 2025 returns. Dollar limits in this publication are for 2025; the publication notes that tax legislation enacted July 4, 2025 (P.L. 119-21) may affect federal deductions, so check IRS.gov/Pub936 and the Schedule A instructions for your tax year. This page summarizes the publication and does not replace it. Marked for human review.