HELOC Interest Deduction

How to use this calculator

1. Taxes. Pick the tax year, your filing status and your top federal tax bracket, then enter your other itemized deductions: state and local taxes after the cap, gifts to charity (from 2026, only the part above 0.5% of your contribution base) and the rest of Schedule A, but not mortgage interest. The calculator adds that itself.
2. HELOC. Enter the line's average balance for the year, its rate and the share you spent on buying, building or substantially improving the home that secures it. The rate starts at 8% as an example: the prime rate of 7% on October 2, 2026 (FRED) plus 1 point.
3. Mortgage. Enter your first mortgage's average balance, the interest you paid on it this year (box 1 of your lender's Form 1098) and whether you took it out before December 16, 2017. A refinance counts from the date of the loan it replaced, up to the balance it paid off. The breakdown above shows each step of the math.

When HELOC interest is tax deductible

Put together, the rules in Publication 936 mean all three of these must be true:

• The money went into the home. You used it to buy, build or substantially improve the home. Interest on the part spent on anything else is not deductible as mortgage interest, no matter when you opened the line.
• That same home secures the line, and it is your main home or your second home.
• You itemize on Schedule A instead of taking the standard deduction.

An improvement is substantial if it adds to the home's value, prolongs its useful life or adapts it to new uses. Repairs that keep the home in good condition, such as repainting, do not count on their own; painting done as part of a renovation that substantially improves the home can be included in its cost.

Money spent on a rental or a business follows the interest-tracing rules of Treasury Regulation 1.163-8T: interest is allocated the way the borrowed money was spent, and the part allocated to that activity may be deductible as a business or rental expense, for rents on Schedule E.

The $750,000 limit counts your first mortgage too

The part of the line spent on the home becomes home acquisition debt, the same kind of debt as a mortgage used to buy the house. Together, on your main home and second home, it has one limit: $750,000 for debt taken on after December 15, 2017 ($375,000 if married filing separately). A mortgage from before December 16, 2017 keeps the older limit of $1,000,000 ($500,000), and newer debt fits only in whatever room it leaves under $750,000. A refinance of that older mortgage is treated as taken out on the original date, up to the amount it refinanced.

Under the limit, all the interest counts. Over it, the worksheet in Publication 936 (Table 1) keeps a share: the limit divided by the average balances, rounded to three decimal places, times all the interest on that debt.

Example, tax year 2025, married filing jointly: a $700,000 mortgage taken out in 2021 with $42,000 of interest, plus a $100,000 line spent on substantial improvements at 9% ($9,000 of interest). The debt totals $800,000; $750,000 ÷ $800,000 = 0.938, and $51,000 × 0.938 = $47,838 is deductible. The line's own share is $8,442, and the same ratio trims $2,604 off the mortgage interest.

Why many homeowners save nothing: the standard deduction

HELOC interest lowers your tax only if your itemized deductions add up to more than the standard deduction. If they do not, you take the standard deduction and the interest changes nothing. The IRS notes that most people take the standard deduction.

2025 amounts as raised by Public Law 119-21; 2026 amounts from IRS Revenue Procedure 2025-32.

Take the calculator's example: a married couple filing jointly for 2026 with $18,000 of other deductions and $13,500 of mortgage interest has $31,500 to itemize, under the $32,200 standard deduction. A $50,000 line at 8% spent on the home adds $4,000 of interest and lifts the total to $35,500, but only the $3,300 above the standard deduction lowers taxable income: at 22%, about $726 a year. Multiplying all the interest by the bracket would give $880 and overstate the saving.

State and local taxes in “other itemized deductions”

State and local taxes count only up to a cap: $40,000 for 2025 and $40,400 for 2026. Above a modified adjusted gross income of $500,000 in 2025 or $505,000 in 2026, the cap shrinks by 30% of the excess, but not below $10,000. If you are married filing separately, each of these dollar amounts is halved. Enter the capped amount, plus other Schedule A items such as gifts to charity.

What the 2025 tax law changed

• The home equity rule is now permanent. The rules that started in 2018, no deduction for home equity debt spent on other things and the $750,000 limit, were written to end after 2025. Public Law 119-21 of July 4, 2025, commonly known as the One, Big, Beautiful Bill Act, removed that end date.
• A higher standard deduction for 2025: $31,500 for joint filers instead of $30,000, $15,750 instead of $15,000 for single filers, $23,625 instead of $22,500 for heads of household. That raises the bar the interest has to clear.
• A bigger cap on state and local taxes from 2025: $40,000 instead of $10,000, described above.
• A trim at the top from 2026. Itemized deductions are reduced by 2/37 of the smaller of two amounts: the itemized total, or taxable income with the itemized deductions added back, above the start of the 37% bracket. For a household whose taxable income stays in the 37% bracket, each dollar of HELOC interest then saves 35 cents instead of 37. The calculator applies this when you pick 2026 and 37%.

Your Form 1098 does not settle it

Your lender reports the interest you paid on Form 1098, but the form does not show how you spent the money. Publication 936 says interest in box 1 from a home equity loan or line of credit is not deductible if the money was not used to buy, build or substantially improve a qualified home.

Risks of borrowing against your home

A HELOC uses your home as collateral. The CFPB's HELOC booklet puts it plainly: if you fall behind or can't repay the loan on schedule, you could lose your home. Paying off credit cards with a line turns debt that was not tied to your home into debt that is, and the interest on that part is not deductible either. A deduction lowers the cost of the interest by at most your bracket; the full payment is still due every month.

Next step: the payment

The tax saving is one part of the cost. Our HELOC calculator shows what a line costs each month during the draw period and after it ends; for a lump sum at a fixed rate, the home equity loan calculator shows the payment and total interest.

HELOC tax deduction questions people ask

Sources

1. IRS Publication 936 (2025), Home Mortgage Interest Deduction - the use rule, debt limits, Table 1 worksheet
2. IRS: Real estate taxes, mortgage interest, points, other property expenses (FAQ) - home equity loans and HELOCs
3. 26 U.S. Code 163 (Cornell LII) - section 163(h)(3)(F) as amended
4. Public Law 119-21 (govinfo) - sections 70102, 70108, 70111 and 70120
5. IRS Revenue Procedure 2025-32 - 2026 tax brackets and standard deduction; 2025 standard deduction as amended
6. IRS Revenue Procedure 2024-40 - 2025 tax brackets
7. 26 CFR 1.163-8T (eCFR) - allocation of interest by tracing
8. IRS: Working Families Tax Cuts - charity deduction for people who do not itemize
9. IRS: Check your eligibility for the enhanced deduction for seniors
10. IRS: New and enhanced deductions for individuals
11. CFPB: What you should know about home equity lines of credit
12. CFPB: Home equity loan vs. HELOC
13. FRED: Bank prime loan rate (DPRIME) - the example HELOC rate

Last reviewed October 12, 2026. See how we calculate. This page is general information, not financial or tax advice.