Is HELOC Interest Tax Deductible in 2026? The Definitive Guide

The "Buy, Build, or Improve" Rule

Prior to 2018, you could use a HELOC to buy a boat, pay for a wedding, or go on vacation, and the IRS would let you write off the interest. Those days are gone.

Under current tax law (valid through 2026), HELOC interest is tax-deductible IF AND ONLY IF the funds are used to "buy, build, or substantially improve" the home that secures the loan.

What Qualifies? (Deductible)

• Kitchen Remodel: Yes.
• New Roof: Yes.
• Adding a Deck: Yes.
• Finishing a Basement: Yes.

What Does NOT Qualify? (Not Deductible)

• Debt Consolidation: No. (Even if it saves you money, the interest isn't deductible).
• College Tuition: No.
• Wedding Expenses: No.
• Furniture: No. (Furniture is considered personal property, not part of the structure).

The Dollar Limit

You can deduct interest on up to $750,000 of total qualified residence loans ($375,000 if married filing separately). This limit includes your primary mortgage balance PLUS your HELOC balance.

Example: You owe $600,000 on your first mortgage and take out a $100,000 HELOC for renovations. Total Debt = $700,000. You are under the cap. All interest is deductible.

Keep Your Receipts!

If you get audited, the IRS will ask for proof. You cannot just simply transfer money to your checking account. You need to show invoices from contractors or receipts from Home Depot that match the withdrawal amounts.