Is interest on a home improvement loan deductible?

The two conditions that matter

For improvement-loan interest to count as home mortgage interest, Publication 936 requires two things at once. First, the debt must be a secured debt on a qualified home: you sign a mortgage, deed of trust or land contract that makes your ownership of the home security for the loan, lets the home satisfy the debt on default, and is recorded or otherwise perfected under state or local law. Second, the proceeds must be used to buy, build or substantially improve that home. The publication also reminds readers that 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 home that secures the loan.

A personal loan that is not secured by the home fails the first condition. A secured loan used to pay for a vacation fails the second. The home improvement loan from a bank, a home equity line used for a kitchen, or a construction loan can pass both.

What is a substantial improvement

An improvement is substantial under the publication if it adds to the value of your home, prolongs its useful life or adapts it to new uses. Repairs that maintain your home in good condition, such as repainting, are not substantial improvements. There is a useful carve-out: if you paint as part of a renovation that substantially improves your qualified home, the painting can be included in the cost of the improvements. Costs of building or improving include the cost of real property and building materials, architect and design fees, and required building permits.

Examples that fit the three-part definition include adding a room, replacing an entire roof system to extend life, or converting a garage into living space. Examples that do not include repainting the same rooms, fixing a leaking faucet or patching drywall. These are illustrations of the definition, not items listed by the IRS.

Timing rules when the loan and the work do not line up

Sometimes the loan arrives before the work or after it. The publication lets a mortgage secured by your home be treated as used to improve it in two cases. If you take out the mortgage before the work is completed, the debt qualifies up to the expenses you incurred within 24 months before the date of the mortgage. If you take out the mortgage within 90 days after the work is completed, the debt qualifies up to the expenses incurred from 24 months before completion through the date of the mortgage.

The publication’s example has Logan building a home from January 31 to October 31 with $45,000 of personal funds and taking out a $36,000 mortgage on November 21. The loan was within 90 days of completion and not more than the expenses within the period, so all $36,000 is home acquisition debt. The calculator above takes the smaller of your loan and your eligible costs, which mirrors that cap.

Limits that still apply

Improvement debt is home acquisition debt, so it counts toward the same cap as your purchase loan. Debt secured after December 15, 2017 is limited to $750,000 combined ($375,000 if married filing separately), reduced by grandfathered debt, and debt secured before December 16, 2017 is capped at $1 million ($500,000). The cap includes the mortgages on your main home and second home. If you are over the cap, interest on the excess is not home mortgage interest. See the acquisition debt page.

Mixed loans

If part of a secured loan paid for the improvement and part paid for something else, the publication calls it a mixed-use mortgage and requires you to track the balance of each category separately. Principal payments on a mixed-use mortgage are applied first to home equity debt not used on the home, then to grandfathered debt, then to home acquisition debt. In its example, a $200,000 second mortgage taken on March 2, 2025 funds $180,000 of improvements and $20,000 of car purchase, and payments of $10,000 in 2025 reduce only the car portion. The home acquisition debt averages $150,000 over the year ($180,000 for ten months, divided by 12). A similar story with a sample calculation is on the home equity loan interest page.

Points on an improvement loan

Points on a loan to substantially improve your main home can be fully deducted in the year paid if the first six year-paid tests are met. If not, you deduct them over the life of the loan. See are mortgage points deductible.

Reporting and records

Interest reported on Form 1098 goes on Schedule A, line 8a, unless it is from a home equity loan, line of credit or credit card loan secured by the property whose proceeds were not used to buy, build or substantially improve a qualified home. The publication says that interest is not deductible. Keep contracts, invoices, permit receipts and bank records so you can show where the loan went. You still need to itemize; compare totals with the whether itemizing beats the standard deduction and see the mortgage interest deduction calculator.

Sources

• IRS Publication 936, Home Mortgage Interest Deduction (2025): “Home Acquisition Debt”, “Substantial improvement” and “Cost of home or improvements”, 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.