Is a HELOC Tax-Deductible in 2026?

You might assume that because a home equity line of credit (HELOC) is secured by your house, the interest is tax-deductible, but that’s not always the case.

Under current tax rules, deductibility depends on how the money is used, not the loan itself. Understanding that distinction helps you set more realistic expectations before borrowing.

This article looks at how HELOC interest deductibility works under current IRS rules, what qualifies, and what doesn’t. It’ll also explain why tax treatment should usually be a secondary consideration when using home equity.

• How HELOC interest deductibility works
• What “substantially improve” means
• Documentation matters
• Why tax deductibility shouldn’t drive the decision

How HELOC interest deductibility works today

The current tax rules come from changes made under the Tax Cuts and Jobs Act, which remain in effect for 2026. Under this framework, interest on a HELOC may be tax-deductible when the funds are used to buy, build, or substantially improve the taxpayer’s home. The Internal Revenue Service does not base deductibility solely on the loan type.

If the money is spent on qualifying home improvements, the interest may be tax-deductible and subject to overall mortgage interest limits. If the funds are used for other purposes, the interest generally doesn’t qualify, which catches many borrowers off guard.

What “substantially improve the home” means

“Substantially improve” sounds broad, but the IRS actually applies it pretty narrowly. In general, qualifying improvements are those that add value to the home, extend its useful life, or adapt it for new uses.

This often includes major renovations, room additions, structural changes, or significant system upgrades. These projects permanently change the home rather than simply keeping it in working condition.

That means routine repairs and maintenance usually don’t qualify. Fixing a leak, repainting walls, or replacing a broken appliance may be necessary, but they’re typically considered upkeep rather than substantial improvements. Cosmetic upgrades can also fall short if they don’t materially affect value or function.

Many common HELOC uses don’t meet the IRS standard for deductibility. Using a HELOC to consolidate credit card debt, pay off student loans, cover medical bills, or fund everyday expenses generally won’t qualify. Even if these uses improve cash flow or reduce interest costs elsewhere, they don’t count as buying, building, or improving the home.

Why documentation matters

Even when HELOC funds are used for qualifying improvements, they aren’t automatically tax-deductible. The burden of proof falls on the taxpayer, not the lender.

To support a deduction, you need records that clearly show how the money was used. That typically means keeping invoices, contracts, and receipts that tie HELOC draws directly to improvement projects.

Problems often arise when funds are mixed. If HELOC proceeds are deposited into a general account and used for multiple purposes, it becomes harder to show which expenses qualify. In those cases, deductions may not be allowed, even if part of the money went toward improvements.

Why tax deductibility shouldn’t drive the decision

Tax treatment is often given more weight than it deserves when homeowners consider a HELOC. While deductibility can be helpful in some cases, it’s rarely a good primary reason to borrow.

A HELOC is best understood as a liquidity tool. Its value comes from flexibility, relatively low interest rates compared to unsecured debt, and the ability to borrow only what you need. Those benefits can still matter even when interest isn’t deductible.

Letting tax outcomes drive borrowing decisions can lead to taking on debt that doesn’t align with your broader financial goals. When deductibility applies, it’s better viewed as a potential bonus rather than the main justification.

The bottom line

In 2026, HELOC interest is deductible under clear, use-based rules. Interest may be deductible when funds are used to buy, build, or substantially improve the home, and generally not deductible when used for other purposes.

If tax treatment is important to you, planning ahead matters. Be clear about how you’ll use the funds, keep good records, and avoid mixing qualifying and non-qualifying expenses.

Above all, evaluate a HELOC as a financial tool first. Consider affordability, repayment risk, and long-term goals before factoring in possible tax benefits. The rules themselves are fairly straightforward, but how they apply can vary — which is why personalized tax advice still matters.