HELOC interest is only tax deductible if the money goes back into your home

A homeowner opens a HELOC, spends the money on whatever comes up, and assumes the interest comes off their taxes at the end of the year.

That’s not how it works.

Before 2018, HELOC interest was generally deductible no matter how you spent the money. The 2017 tax law changed that, and the One Big Beautiful Bill Act made the change permanent after it was set to expire at the end of 2025.

Today the rule is simple to state. HELOC interest is deductible only when the money is used to buy, build, or substantially improve the home that secures the loan.

Use it on a kitchen remodel, a new roof, or an addition, and that interest can qualify. Use it to pay off credit cards, buy a car, or cover tuition, and it doesn’t, even though your home backs the loan.

Mixed use gets split. Say you draw $40,000 and spend $25,000 on a bathroom remodel and $15,000 on credit cards. Only the interest tied to the $25,000 can qualify.

Two more limits matter.

You have to itemize on Schedule A. If your total itemized deductions don’t beat the standard deduction, the HELOC interest deduction saves you nothing.

And the deduction covers interest on a combined $750,000 of mortgage and home equity debt, or $375,000 if you’re married filing separately.

Keep your records. Lender statements showing what you drew and contractor invoices showing what you spent are your proof.

The bottom line is this: a HELOC is not a tax break by default. What you spend the money on decides whether the interest is deductible, so know that before you draw.

What would you use a HELOC for, home improvements or something else?