Can I Write Off HELOC Interest? Uses, $750K Cap, and Records

You can write off HELOC interest only when you used the borrowed money to buy, build, or substantially improve the home that secures the loan, and only to the extent your total mortgage debt stays within $750,000 ($375,000 if married filing separately). Spend the funds on anything else, and the interest is not deductible.¹

What You Spent the Money On Decides Everything

The IRS looks at where the dollars went, not what collateral backs the loan. A HELOC used to pay off credit cards, cover tuition, buy a car, or take a vacation produces zero deductible interest, even though the loan is secured by your house and carries a mortgage-style rate.

When HELOC funds go toward qualifying home improvements, the debt is reclassified as “acquisition indebtedness” under the tax code, the same bucket as your original purchase mortgage.² That reclassification is what unlocks the deduction. A HELOC that fails the use-of-funds test stays classified as home equity debt, and interest on home equity debt is no longer deductible under any circumstances.

One thing worth clearing up: the restrictions that started with the Tax Cuts and Jobs Act in 2018 were originally set to expire. They didn’t. The One Big Beautiful Bill Act, signed on July 4, 2025, made them permanent.³ The old $100,000 home equity deduction that applied regardless of use is gone for good. If you’ve been holding off on a strategy while waiting for it to come back, stop waiting.

What Counts as Substantially Improving the Home

The IRS defines improvements as work that adds to your home’s value, prolongs its useful life, or adapts it to new uses.⁴ These are capital improvements that become part of the property. Common examples:

Additions such as a new bedroom, bathroom, deck, garage, or porch
Major systems: central air conditioning, a heating system, new wiring, or a security system
Exterior work like a new roof, siding, or storm windows
Interior remodels including kitchen modernization, new flooring, or a fireplace
Landscaping, a driveway, retaining walls, or a swimming pool

Routine maintenance doesn’t qualify. Painting a room, patching cracks, fixing a leaky faucet, or swapping out broken hardware are repairs. There’s one wrinkle: repair-type work performed as part of a larger renovation counts. Replacing a few broken windows is a repair; replacing every window in the house during a whole-house renovation is an improvement.⁴

Buying furniture or standalone appliances doesn’t qualify either, no matter the price tag. The money has to fund something physically attached to or integrated into the home.

The $750,000 Cap on Deductible Mortgage Debt

Even if every dollar of your HELOC went to qualifying improvements, there’s a ceiling on how much mortgage debt can generate a deduction. The limit is combined: primary mortgage, qualifying HELOC balance, and any mortgage on a second home all count together.

For loans taken out after December 15, 2017, that combined cap is $750,000, or $375,000 if you’re married filing separately.⁵ In practice: if you carry a $650,000 primary mortgage and draw $150,000 on a qualifying HELOC, your total acquisition debt is $800,000. Interest on the first $750,000 is deductible; interest on the $50,000 above the cap is not.

Older mortgages get more room. Loans originated before December 16, 2017, are capped at $1 million ($500,000 if married filing separately).⁶ The math gets complicated when a pre-2017 primary mortgage sits under a newer HELOC, and Publication 936 has the worksheet. This is one place a tax professional earns the fee.

When a HELOC Draw Pays for More Than One Thing

Plenty of people use part of a HELOC for a kitchen remodel and part to knock down a credit card balance. When funds serve both qualifying and nonqualifying purposes, only the interest tied to the qualifying portion is deductible. The IRS calls this interest tracing, with the rules in 26 CFR § 1.163-8T.⁷

Interest follows the money. Draw $100,000, spend $70,000 on an addition and $30,000 on personal expenses, and 70% of the interest is potentially deductible. Publication 936 provides a worksheet for calculating average balances in each category across the year, which sets the exact split.⁵

The clean way to avoid an allocation mess is to never mix purposes. Open a separate account, park HELOC draws there, and pay contractors and suppliers exclusively from it. If you commingle HELOC funds with your regular checking, you’ll need statements clear enough to show which dollars went where. If you can’t trace the funds to a specific qualifying expense, the deduction is disallowed.

A Different Route: Using HELOC Funds for Business

There’s a separate way to deduct HELOC interest that has nothing to do with home improvements. If you use the proceeds for business expenses, the interest is deductible as a business expense rather than mortgage interest. The same tracing logic applies: interest follows the use of funds.⁵

A sole proprietor who draws $50,000 to buy equipment or inventory would deduct the interest on Schedule C, not Schedule A. That deduction isn’t subject to the $750,000 acquisition debt cap because it’s classified as business interest. Business interest has its own limitations, though, and the documentation needs to be airtight. Route the draw directly into a dedicated business account and keep the paper trail intact.

Records That Actually Support the Deduction

Your lender sends Form 1098 each year showing total interest paid.⁸ What it doesn’t show is how you used the money. The lender has no duty to track or verify that. Proving the qualifying use is entirely on you.

Keep the following together:

Contracts and invoices from every contractor, supplier, or vendor on the project
Bank statements or canceled checks showing HELOC funds moving to the vendor
Photos, permits, and inspection reports establishing the scope of the improvement
Monthly HELOC statements matching draw dates to the corresponding expenses

If funds passed through a personal account before reaching the contractor, the deposit and the matching payment need to line up within a short, reasonable window. The IRS will scrutinize any gap or commingling that obscures the connection between the loan and the improvement. Hold these records for as long as you own the home, plus at least three years after the return claiming the deduction.

Claiming It on Your Return

Deducting HELOC interest means itemizing on Schedule A instead of taking the standard deduction.⁹ That only pays off if your total itemized deductions beat the standard deduction. For 2026, the standard deduction figures are:¹⁰

Married filing jointly: $32,200
Single or married filing separately: $16,100
Head of household: $24,150

Those are meaningful thresholds. Unless HELOC interest is stacking with a large primary mortgage interest payment, state and local taxes (capped at $10,000), charitable contributions, and medical expenses, itemizing may not beat the standard deduction. Run the numbers both ways.

The deductible portion goes on line 8a of Schedule A when the interest was reported on Form 1098.¹¹ Important detail: Form 1098 reports total interest paid, not the deductible amount. If your combined mortgage debt exceeds the $750,000 cap, or you used part of the HELOC for nonqualifying expenses, calculate the qualifying portion yourself and report only that. Claiming the full Form 1098 figure when part of it doesn’t qualify is a common audit trigger. The worksheet in Publication 936 walks through the allocation step by step.⁵

1
Internal Revenue Service. Real Estate Taxes, Mortgage Interest, Points, Other Property Expenses
2
Office of the Law Revision Counsel. 26 USC 163 – Interest
3
Internal Revenue Service. One, Big, Beautiful Bill Act – Tax Deductions for Working Americans and Seniors
4
Internal Revenue Service. Publication 523 (2025), Selling Your Home
5
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
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Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
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eCFR. 26 CFR 1.163-8T – Allocation of Interest Expense Among Expenditures (Temporary)
8
Internal Revenue Service. Instructions for Form 1098 – Mortgage Interest Statement
9
Internal Revenue Service. Instructions for Schedule A (Form 1040)
10
Internal Revenue Service. Rev. Proc. 2025-32
11
Internal Revenue Service. Schedule A (Form 1040) – Itemized Deductions