Are home equity loans and HELOCs tax-deductible?

Your home equity loans or HELOCs* are not tax-deductible. However, interest paid on home equity loans and HELOCs can be tax-deductible depending on how you use your funds. 

Both home equity loans and home equity lines of credit, or HELOC, tap into your home’s equity. You do not need to pay taxes on funds you receive when tapping into your home equity. Some of the interest paid when accessing these funds could be tax-deductible, depending on how you use your funds. To get the most out of your deductions, you could itemize your tax deductions instead of taking the standard deductions. 

Understanding how the interest you pay when tapping into your home equity could be tax-deductible can save you time and, potentially, money when tax season rolls around**. Understanding this may also give you some ideas on how you could use your funds from a home equity loan or HELOC. 

Ready to start tapping into your home equity? Began an application for your HELOC or home equity loan today. 

According to the IRS, interest paid on home equity loans and HELOCs can be tax-deductible if you use your loan for home repair, renovation or in some cases remodeling of your home.  

Improving your home with funds accessed through tapping into your home’s equity are classified as home acquisition debt and may be tax-deductible. Interest can only be tax-deductible if used for home improvements, not for any living expenses or personal uses. 

Tax deductions on interest paid for a HELOC or home equity loan can work for primary or second homes. 

As mentioned, the main rule when deducting interest on HELOCs and home equity loans is how it is used. Only interest on funds used on home improvements could be eligible for tax deductions. 

Another rule you will want to follow is to keep all receipts, invoices and contracts. You will need them to prove where your funds went. You will also need to make sure that you set up a separate account to draw from for your home improvements to ensure that these funds aren’t used on other expenses. 

Even though it is not necessarily a rule, it is a smart idea to talk with a tax expert to learn more about your interest being tax-deductible. An expert can tell you how much of a deduction you could qualify for as well as which home improvements you’ve made or are planning to make could be deductible. 

To deduct your HELOC or home equity loan interest, you will be given an IRS Form 1098 by a lender and will need to prove that you used your funds for home improvements. 

An IRS Form 1098 will show you how much interest you have paid in the past year. If you are hoping to deduct interest paid on HELOCs or home equity loans, make sure you keep detailed records of where your funds went. This can include invoices, contracts and receipts. 

Yes, you can use your funds from a home equity loan or HELOC to pay taxes. 

The funds you receive from tapping into your home equity can be used for any expense you may have, including covering your taxes.  

The exact tax breaks available to homeowners could vary based on where they live and the property they have. 

Some tax breaks available to homeowners could include: 

• Property tax deductions
• HOA fees

• First-time homebuyers tax credit
• Mortgage interest deductions

Talk to a tax expert to learn tax breaks that might be available for you and your financial situation. 

The first thing you will want to do when looking to deduct interest from funds used on home improvements is talk to a tax expert to make sure your planned home improvements qualify for tax deductions. 

Not all home improvements made with home equity loan or HELOC funds will qualify your interest paid for tax deductions. A tax expert can tell you which home improvements will allow you to deduct interest paid on your taxes.  

After that, you can start planning your home improvements and start an application that taps into your home equity. 

You can begin the process of tapping into your home equity when completing your home equity loan or HELOC application. 

_{*Rate home equity line of credit (HELOC) is an open-end product where the full loan amount (minus the origination fee) will be 100% drawn at the time of origination. The initial amount funded at origination will be based on a fixed rate; however, this product contains an additional draw feature. As the borrower repays the balance on the line, the borrower may make additional draws during the draw period. If the borrower elects to make an additional draw, the interest rate for that draw will be set as of the date of the draw and will be based on an Index, which is the Prime Rate published in the Wall Street Journal for the calendar month preceding the date of the additional draw, plus a fixed margin. Accordingly, the fixed rate for any additional draw may be higher than the fixed rate for the initial draw. This product is currently not offered in the states of New York, Kentucky, West Virginia, Delaware and Maryland. The HELOC requires you to pledge your home as collateral, and you could lose your home if you fail to repay. Property insurance is required as a condition of the loan and flood insurance may be required if your property is located in a flood zone. Borrowers must meet minimum lender requirements in order to be eligible for financing. Available for primary, second homes and investment properties only. Dependent on minimum credit score and debt-to-income requirements. Occupancy status, lien position and credit score are all factors to determine your rate and max available loan amount. Not all applicants will be approved. Applicants subject to credit and underwriting approval. Contact Rate for more information and to discuss your individual circumstances. Restrictions Apply.} 

_{**Savings, if any, vary based on the consumer’s credit profile, interest rate availability, and other factors. Contact Rate for current rates. Restrictions apply.} 

_{Rate does not provide tax advice. The consumer should always consult a tax advisor for information regarding the deductibility of interest and other charges in their particular situation.}