Can I Deduct HELOC Interest on my Income Taxes?

If you have a home equity line of credit, or HELOC, you’ve probably wondered whether you’re allowed to deduct the interest on your income tax return.

The short answer is, maybe. It depends on how you use the funds.

Tax rules around home equity interest have changed in recent years, and the latest update made those rules permanent. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, made permanent under current law, subject to future congressional changes.

Under the current rules, you may be able to deduct interest on a home equity loan or HELOC, but only if you used the proceeds to buy, build, or substantially improve" your home. If you used the funds for something else, such as paying off credit card debt or covering education expenses, the interest generally isn’t deductible.

Understanding these rules can help you feel more confident as you plan your next home project or prepare for tax season.

Is there a limit on how much mortgage interest you can deduct?

There is a limit on how much home mortgage interest you can deduct. And thanks to the OBBBA, that limit is now permanent.

You can deduct interest on up to $750,000 of home mortgage debt ($375,000 if you’re married and file separately from your spouse). That cap applies to your total home acquisition debt, meaning your primary mortgage and any home equity loan or HELOC combined.

In Hawaii, where home values are among the highest in the nation, staying on top of these limits is key to making your money work harder for you.

It’s important to know that the $750,000 limit applies to mortgages taken out after December 15, 2017. If your mortgage predates that, you can still use the higher $1 million limit ($500,000 if married filing separately). That grandfathered amount remains intact under the new law.

What HELOC uses can be tax deductible?

The OBBBA made the limit on deductible home equity interest permanent, so there’s more clarity now on how you can use a HELOC to reach your goals while potentially saving on taxes. To qualify, you must use the proceeds from the HELOC to buy, build, or substantially improve the home that secures the loan.

So, if you used your HELOC to add a room, remodel your kitchen, or refinance your existing mortgage, the interest may be tax-deductible (subject to the $750,000 limit). But if you used the funds to buy a second home or investment property and the loan is not secured by that property, the interest is generally not deductible.

What if you used your HELOC for a mix of purposes? For example, say you used some for a kitchen remodel and some for credit card payoff. In that case, you’ll need to track how much you spent on each. Your accountant or tax advisor can help you sort through that at tax time to make sure you’re claiming every deduction you’re entitled to.

While you do not submit receipts with your return, the IRS recommends retaining real estate-related tax records, including purchase documents and renovation receipts, for as long as you own the property, plus three years after you file a return reporting its sale.

Do you have to itemize deductions to benefit from a HELOC tax deduction?

To deduct home equity interest, you need to itemize deductions rather than claiming the standard deduction.

When you file your tax return, you choose between listing out your individual deductions (itemizing) or claiming a flat amount set by the IRS (the standard deduction). You generally benefit from itemizing only if your total deductions add up to more than the standard deduction available for your filing status.

Itemized deductions include out-of-pocket medical expenses, home mortgage and deductible HELOC interest, state and local taxes, and charitable contributions.

Here are the standard deduction amounts for 2025 and 2026:

So, if you’re married and file jointly with your spouse, you need more than $31,500 in itemized deductions (for 2025) to make itemizing worthwhile. If your total itemized deductions are less than that amount, you’re better off taking the standard deduction. Additional standard deduction amounts may apply for taxpayers who are age 65 or older or who are blind.

It’s worth doing the math, especially if you have a mortgage, pay significant property taxes or state income taxes, or make regular charitable contributions. A tax advisor can help you figure out which approach saves you more.

Here's a quick example

Let's take what we learned above and see how the current tax laws might affect you. Say the balance on your first mortgage for your home in Hawaii is $675,000. You want to take out a $100,000 home equity line of credit to remodel your home.

Because you plan to use your HELOC proceeds on home improvement, the interest is deductible. However, because your combined mortgage and HELOC debt would be $775,000, assuming you purchased the home after December 15, 2017, your tax deduction would be limited to interest paid on the first $750,000 of debt. Federal tax rules apply; state tax treatment may differ.

Questions to discuss with your tax preparer

As you can see, the rules for deducting HELOC interest can get complicated. For that reason, it’s a good idea to discuss these and other tax deductions with your accountant or tax advisor. Here are a few questions to ask at your meeting.

• Will I get a bigger tax benefit on this year’s return by itemizing or by claiming the standard deduction?
• What receipts and other documentation do you need from me?
• What are some other common homeowner tax deductions and credits I can claim?
• What records should I keep related to my HELOC spending?

Ready to take the next step?

Now that you know a little more about how you could benefit from tax deductions on a HELOC we can help you get started:

• Apply online at boh.com
• Book an appointment with one of our lending experts
• List of documents you’ll need to apply

The content in this article is for informational purposes only, and should not be construed as tax, legal or accounting advice by Bank of Hawaii and its affiliates. You should consult your own tax, legal and accounting advisors.