Is home equity loan interest tax deductible?

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Please note: Discover® Home Loans offers home equity loans and mortgage refinance opportunities but does not offer purchase mortgages or HELOCs.

Here’s a question you might want to know the answer to if you’re considering taking out a home equity loan: ‘Are home equity loans tax deductible?’ The short answer is – it depends.

With the home mortgage interest deduction, you may be able to deduct the interest on a home equity loan secured by your main or second home, subject to certain dollar limitations, according to the IRS. However, you must use the borrowed funds to “buy, build, or substantially” improve the home.

These rules are for the tax years 2018 to 2025 and may change in 2026.

How to claim the home mortgage interest deduction

First things first, you need to make sure that you qualify for the home mortgage interest deduction – meaning, in addition to meeting other requirements, your home equity loan funds were used to buy, build, or substantially improve the home that secures the loan.

The IRS says that a “substantial” home improvement is one that adds to the value of your home, prolongs its useful life, or adapts it to new uses. For example, painting as part of a renovation that significantly enhances your home may be considered a substantial improvement. However, repairs that simply maintain your home, such as repainting, aren't considered substantial improvements.

If you qualify for and want to claim the home mortgage interest deduction, you must itemize your deductions on Schedule A (IRS Form 1040) rather than taking the standard deduction. You’ll have to determine whether itemizing provides a greater tax benefit than the standard deduction.

Reach out to a tax advisor to learn more about what home improvements are regarded as substantial and how to itemize your mortgage interest deduction.

Standard deduction vs. itemized deductions

For 2025, the standard deduction is $15,000 for single taxpayers and married individuals filing separately, $30,000 for married couples filing jointly, and $22,500 for heads of households.

You may find that the standard deduction gives a better tax break than itemizing deductions, or vice versa. Consulting with a tax professional may help you decide which path to take.

Rules on deducting home equity loan interest

If you take out a home equity loan to serve multiple purposes, only the portion of funds used to buy, build, or substantially improve the home that secures the loan can be considered for mortgage interest deduction.

Say you take out a $20,000 home equity loan. You use $10,000 to substantially improve your home and $10,000 to pay for a vacation. You may only deduct the interest on the $10,000 used to substantially improve your home

Maximum allowances for the home mortgage interest deduction

The IRS considers home equity loans a type of home mortgage, and there are dollar limitations on how much home mortgage interest you can deduct from your tax return.

For 2024 returns, you can deduct home mortgage interest on the first $750,000 ($375,000 or less if married filing separately) of "indebtedness." Indebtedness is the total amount of debt you owe that is secured by your home.

Higher dollar limitations ($1 million or less, or $500,000 if married filing separately) apply if you deduct home mortgage interest from indebtedness incurred after October 13,1987, but before December 16, 2017.

Contact a tax professional about the specific details of your situation. This may help you determine how much home mortgage interest you can deduct.

LEARN MORE: Is home equity line of credit (HELOC) interest tax deductible?

Are you planning for home improvements? Discover Home Loans offers low, fixed rates on home equity loans between $35,000 and $300,000 (2nd Lien) with $0 costs due at closing.

Real estate tax

Most state and local governments charge an annual tax on the value of real property called real estate tax. You may be able to deduct this tax on your federal return. For 2024 returns, the deduction for state and local taxes, including real estate taxes, is limited to $10,000 ($5,000 if married filing separately).

Home sale tax exclusion

If you have a capital gain from selling your main home, you may be able to exclude up to $250,000 of that amount from your income (up to $500,000 if married filing jointly). Qualifying for this exclusion involves satisfying the IRS's ownership and use tests.

Your next steps

While some borrowers may not qualify for the home mortgage interest deduction, home equity loans may still be an attractive lending option.

Be sure to speak with a financial adviser and tax professional about tax laws and how they affect you. Also, consider using resources like online calculators that may help you decide on the next steps in your financial journey.

Main: The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Capital One, N.A. or its affiliates.

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