Homeownership

Tax tips for using a HELOC

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In the past, home equity loan interest was generally tax deductible no matter how the borrowed money was used—whether you were fixing up your house, paying off debt or otherwise.

But since the Tax Cuts and Jobs Act of 2017, homeowners can only deduct interest from home equity loans and home equity lines of credit (HELOCs) if the loans are being used to fund certain types of projects.

Under the current law, in effect through 2025, your HELOC interest is eligible for a tax deduction only if the proceeds are used to “substantially improve” a qualified residence. That means the project must add to your home’s value, prolong its useful life or adapt it for new uses.

While the law seems complicated, here are some suggested guidelines to determine which projects may be eligible for interest deductions under the new rules.

Deduction Do’s

Projects that add value

If you’re building an addition to your home—such as an in-law suite or deck—HELOC interest may be deductible because those projects can help to boost the property’s value.

Many other projects can push up the potential sale price of your house, too. Think of results that will make your home more attractive to buyers, such as installing central air conditioning, energy efficient windows or a tankless hot water heating system.

Improvements that increase longevity

Unlike projects that can give your property more curb appeal, these are investments that add years—and functionality—to your home’s life. Consider, for instance, replacing the roof, redoing duct work or putting in new attic insulation.

New use modifications

An example of a project that adapts your home to new uses: installing an elevator to help someone with mobility issues. Or you might create an “open concept living area” by taking down a wall and adding supporting beams if doing so would increase your home’s value. Another example would be renovations that make parts of the house handicap accessible.

Deduction Don’ts

Home maintenance

Under the 2017 law, interest on loans for projects that keep your house in good condition aren’t tax deductible. Maintenance includes things such as painting (inside or out), pumping the septic system, cleaning gutters and power washing siding. One exception: If you repaint as part of a larger “substantial improvement” project, you may be able to count the painting cost.

Minor repairs

Interest on loans for regular fixes or tiny cosmetic repairs can’t be deducted, either. Examples would be when you replace a broken gutter, fix a cracked window or repair a leaky pipe.


It’s nice to change your house in a way that suits your personal preferences. However, you’ll only get a tax deduction when you use HELOC funds to substantially improve your home as described above. No matter how you use your HELOC funds, remember there are also dollar limits on how much of the loan qualifies for interest deductions, depending on your tax filing status and the combined amount of certain mortgages and other home equity loans. That’s why it always pays to do your research. To find out more, talk to your tax advisor and visit IRS.gov.

Close Disclaimer

The material provided on this website is for informational use only and is not intended for financial, tax or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.

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