Is Home Improvement Loan Interest Tax Deductible? What Qualifies and What Doesn’t

Home improvement loan interest can be tax deductible, but only if you use the loan proceeds to buy, build or substantially improve your home. You also need to itemize deductions on your return.

Simply taking out a home equity loan or home equity line of credit (HELOC) doesn’t automatically make the interest deductible. Instead, it comes down to how you use the money that determines whether or not you can deduct the interest.

If you need funds for your home improvement, MoneyLion offers a service to help you find personal loan offers based on the info you provide. You can get matched with offers for up to $50,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you. You can also use the loan funds to pay off other existing debts. MoneyLion is here to help.

Quick Take

• Use matters more than loan type: Interest is deductible based on what you spend the money on, not what kind of loan you take out.

• “Substantial improvements” qualify: Major renovations that add value are deductible, but routine repairs and maintenance are not.

• You must itemize to benefit: If your itemized deductions don’t exceed the standard deductions for your filing class, you won’t benefit.

• Debt limits apply: You can only deduct interest up to a certain limit of qualified home loan debt, with thresholds varying by filing status.

When Is Interest Tax Deductible?

Good news: Both home equity loans and HELOCs can have deductible interest tax if they’re used for qualifying improvements.

Home Equity Loans

Home equity loan interest is deductible if you use the funds to buy, build or substantially improve the home that secures the loan.

If you borrow $60,000 to add a bedroom to your home or renovate your kitchen, for example, the interest is deductible.

If, however, you use the same $60,000 to pay off your student loans or buy a car, the interest isn’t deductible, even though your home backs the loan.

HELOCs

HELOC interest follows the same rules as home equity loans. Interest is only deductible when you’re using the borrowed funds to substantially improve the home that’s securing the HELOC.

With HELOCS, ongoing documentation is particularly important, as you can draw funds multiple times for different purposes.

You might draw $30,000 from your HELOC for a bathroom remodel, pay some of it back and then draw $10,000 for a vacation.

Keeping careful records can help you keep track of what you can actually deduct when filing your taxes.

Do You Need To Itemize To Claim It?

Yes, you must itemize deductions on Schedule A to claim home improvement loan interest. This means forgoing the standard deduction. You can see standard deductions for tax years 2025 and 2026 here:

As a result, itemizing only makes sense if your total itemized deductions — which can include mortgage interest, state and local taxes, charitable donations and medical expenses exceeding 7.5% adjusted gross income (AGI) — exceed that standard deduction.

For many homeowners, itemizing no longer provides a benefit, and it’s more advantageous to take the standard deduction. That said, run the numbers yourself to see what’s best for you.

When Is Home Improvement Loan Interest Not Deductible?

Interest on home improvement loans is not deductible when:

• You use the money for non-home purposes: If you’re paying off credit cards, buying a car or covering personal expenses, the interest is non-deductible even if your home secures the loan.

• The work is routine maintenance or repairs: Replacing dented drywall, fixing a leaky faucet or swapping out broken tiles don’t qualify.

• You take the standard deduction: If you don’t itemize, you won’t receive any tax benefit from interest paid.

• You exceed the debt limits: The interest on mortgage debt above $750,000 isn’t deductible.

• The loan isn’t secured by your home: Personal loans and credit cards don’t qualify, even if you use them to make substantial improvements to your home.

What Counts as a Substantial Improvement?

This is the question of the hour — what counts as a substantial home improvement?

The IRS allows for deductions for improvements that add value to your home, prolong its useful life, or adapt to new uses. Examples include:

• Adding a room or extension

• Installing new heating or air conditioning systems

• Kitchen or bathroom remodels

• New or expanded decks or patios

• Finishing incomplete spaces, such as basements or garages

• A new roof

• New, upgraded windows

These are all more substantial upgrades than replacing a broken window with the same one, or painting to spruce up the curb appeal. These actions would likely help resale value, but they don’t count as substantial improvements.

Mortgage Debt Limits That Apply

The IRS caps the total home loan debt that you can deduct interest on.

• For loans taken after Dec. 15, 2017, you can deduct interest on up to $750,000 of qualified residence loans — or $375,000 if married filing separately.

This limit applies to your combined mortgage debt, so it includes your mortgage and your home equity loan or line of credit.

How To Claim the Deduction: Step by Step

When doing your taxes, you can claim the deduction on interest of your home equity loans with these steps:

1. Verify that you qualify: Confirm that you used your loan’s funding to substantially improve your home per the IRS’s definition, and that your total mortgage debt is under $750,000.

2. Gather documentation: Collect your documentation proving how you spent the funds and collect your interest statements. Your lender will send a Form 1098 showing the interest you paid during the year.

3. Calculate whether itemizing actually saves you money: Add up all potential itemized deductions. If the total exceeds your standard deduction, itemizing makes sense.

4. Complete Schedule A: Report your home mortgage interest on Schedule A, and keep all documentation for at least three years.

Tax Credits for Home Improvements

Tax credits directly reduce your tax bill, and are completely separate from interest deductions. Unlike deductions, which lower taxable income, tax credits reduce the amount of taxes you owe dollar for dollar.

Examples of home credits may include:

• Energy efficient home improvement credit: Receive up to $3,200 annually for qualifying upgrades like heat pumps, windows, doors and insulation.

• Residential clean energy credit: Equals 30% of costs for solar panels, solar water heaters and geothermal heat pumps. Note: This program has ended, so only those who completed projects by Dec. 31, 2025, can qualify.

• Alternative fuel vehicle refueling property credit: Receive up to 30% of the cost, up to $1,000 annually per item, for qualified refueling or recharging property.

Key Takeaways

• Home improvement loan interest is only deductible on your tax return if you use the funds to substantially improve the home that secured the loan, so how you spend the money determines eligibility.

• You must itemize deductions to benefit — do the math to see if the standard deduction would benefit you more financially.

• Keep detailed records proving that you used the loan’s proceeds for qualifying improvements, as the burden of proof falls on you in the event of an audit.

• Energy-efficient improvements may qualify for tax credits in addition to interest deductions.

FAQs

Still have questions about deducting your home equity loan interest on your taxes? These answers can help provide some clarity:

Can I deduct HELOC interest if I used part of it for other expenses?

You can only deduct the interest on the portion used for substantial home improvements.

For example, if you drew $50,000 and used $40,000 for a kitchen remodel and $10,000 to pay off high-interest debt, you can only deduct the interest on the $40,000.

Are repairs tax deductible?

No, repairs and general maintenance, like replacing a broken window or fixing a leaky faucet, are not tax deductible. However, major renovations that add value or prolong your home’s life are deductible. If you replace windows with new eco-friendly windows as part of a larger bathroom renovation, for example, that may qualify.

Can I deduct the interest on a home improvement loan?

Yes, you may be able to deduct the interest on a home improvement loan depending on certain qualifying criteria. You must use the loan proceeds to substantially improve your home, and the loan must be secured by that home. Finally, you must itemize deductions.

Sources

• IRS. 2025. "Publication 936 (2025), Home Mortgage Interest Deduction."

• IRS. 2025. "IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill."

• IRS. 2025. "Energy Efficient Home Improvement Credit."

• IRS. 2026. "Residential Clean Energy Credit."

• IRS. 2026. "Alternative Fuel Vehicle Refueling Property Credit."