Home Equity Loan Interest Deductibility

Interest on home equity loans is deductible only if the loan proceeds are used to buy, build, or substantially improve the home that secures the loan. [1] If the home equity loan is used for personal expenses, such as paying off credit cards or student loans, or to purchase a vacation home, the interest is not deductible. [1]

Additional requirements:

The combined total of acquisition debt and home equity debt is limited to $750,000 for tax years 2025 and beyond. [2] Both loans must secure the same home for the home equity loan interest to qualify as deductible. [1]

Important note:

These limits on home equity indebtedness only affect the deductibility of home mortgage interest as an itemized deduction. There is no limit to the deductibility of home mortgage interest for rental, office in home, or other business activities if the interest can properly be traced to that activity. [3]