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You may be able to claim a home loan tax deduction when you file your federal tax return if you follow IRS rules. This includes detailing deductions and using the loan to buy, build or improve your home. Home equity line of credit (HELOC) interest may also be tax deductible under the same rules.
Find out if you qualify for these tax savings and learn how to claim the deduction if you do:
Is the interest on my home loan tax deductible?
Yes, interest on home equity loans is tax deductible, but only if you use the loan to buy, build or significantly improve a qualifying home. Under IRS rules for deducting any type of interest on a home loan, a “qualifying home” can be your principal residence (primary residence) or your vacation home (perhaps a vacation home, but only if you are not renting it).
Here are some examples of when you may be able to claim a tax deduction on your home equity loan:
- To buy: You buy a house and put less than 20% down. Instead of paying for private mortgage insurance (PMI), you take out a home equity line of credit as a piggyback loan.
- To construct: You take out a home equity loan to build a secondary suite (i.e. additional indoor living space with plumbing and electrical) in your backyard.
- Substantially improve: You use a home equity loan or HELOC to renovate your kitchen.
Important: If you use the equity in your home for other purposes, such as paying off high-interest credit card debt, paying off student loans, or other personal expenses unrelated to your home, interest is not tax deductible.
To see: Home Equity Line of Credit (HELOC): What It Is and More
Rules for the tax deduction of interest on home equity loans
The rules for deducting mortgage interest on your tax return are the same whether it’s a first mortgage, second mortgage (home equity loan or line of credit), renovation loan home equity or refinance loan.
Generally, you can claim a tax deduction for the interest you pay on up to $750,000 of mortgage debt, regardless of filing status, except married filing separately. In this case, you can only deduct interest on up to $375,000 of mortgage debt.
These limits went into effect for loans taken on or after December 16, 2017 under the federal Tax Cuts and Jobs Act (TCJA). They will expire on the last day of 2025 unless Congress acts to extend or modify them.
To verify: Mortgage Refinance Tax Deductions Every Homeowner Should Know About
What if I took out a home equity loan before the Tax Cuts and Jobs Act came into force?
If you took out a home equity loan before the TCJA took effect, you will have a higher limit of $1 million (this limit is reduced to $500,000 if you are married and filing separately).
These old limits also apply to any mortgage debt refinanced after the TCJA, assuming you incurred the original debt before the TCJA took effect. For example, if you took out a home equity loan in 2015 and refinanced it today, you would still qualify for the pre-TCJA upper limit. You simply cannot claim the upper limit on any additional debt (such as the cash out portion of a cash refinance).
Learn the difference: Home Equity Loan vs. Home Equity Line of Credit (HELOC)
How to claim the interest tax deduction on a home loan
You will need to follow these steps to claim a mortgage interest deduction on your federal tax return.
- Gather your year-end mortgage statements. Every lender you have a mortgage with should give you a mortgage interest statement (IRS Form 1098) in January to show you — and report to the IRS — how much interest you paid them in the previous tax year. This form will also show the date your loan was issued so you know what deduction limit applies. You may not receive this form if you paid less than $600 in interest.
- Calculate the total of your itemized deductions. You can only deduct interest on home loans if you itemize the deductions on your federal return. You cannot claim it if you take the standard deduction. In addition to mortgage interest, many people itemize property taxes, personal property taxes, state and local income or sales taxes, and charitable donations. These expenses, combined with your mortgage interest, could make your itemized deductions high enough to be worth claiming.
- Don’t forget the dots. If you paid points to reduce your interest rate, these are considered prepaid interest. They will be reported on the 1098 form and you may be able to deduct them.
- Decide which deduction to claim. You will not be ahead of your taxes unless your itemized deductions are greater than the standard deduction. It is important to note that the standard deduction amount often changes from year to year. See the table below for the standard deduction by filing status for the 2021 and 2022 tax years.
|Filing status||Tax year 2021||Tax year 2022|
|Married filing jointly||$25,100||$25,900|
|Groom filing separately||$12,550||$12,950|
|head of household||$18,800||$19,400|
Unfortunately for many taxpayers, the tax law makes it easier for single filers to benefit from their mortgage interest split, as their standard deduction is half that of married couples.
Filing a separate return if you’re married can help you itemize interest on your home equity loan, but it could also penalize you in many other ways, such as preventing you from contributing to a Roth IRA. Most taxpayers won’t benefit from this tactic, so it’s best to speak with a tax professional ahead of time if this is a decision you’re considering.
Don’t miss: The Tax Advantages of Owning a Home: Essential Deductions and Credits
What you will need to claim the mortgage interest tax deduction
To claim a home equity loan interest deduction, you will need to itemize your deductions on Schedule A (Form 1040).
You will also need to register the documents supporting your claim. You won’t submit them with your tax return, but you should keep them for your records as proof of how much interest you paid and how you used the loan proceeds in case you are audited. Here’s what to keep:
- 1098 forms from your home lenders
- Bank statements showing mortgage payments
- Closing your loan disclosure
- Receipts, bills, and contracts for home renovations or construction expenses
Although Credible does not offer home equity loans, we can help you find a great rate for a cash refinance. Within minutes, you can see personalized, pre-qualified refinance rates from all of our partner lenders.
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