A home equity line of credit (HELOC) lets you borrow against your home's value, but the IRS does not automatically allow a deduction for the interest you pay. Whether HELOC interest is deductible in 2026 depends entirely on how you use the loan proceeds, not on the type of loan or the lender.
Does What You Do With HELOC Funds Determine the Deduction?
Yes. The IRS looks at what you do with the borrowed money, not at how the loan is structured. Under IRC Section 163(h)(3)(B), home equity interest qualifies as deductible mortgage interest only when the proceeds are used to:
- Buy the qualified residence that secures the loan
- Build the qualified residence that secures the loan
- Substantially improve the qualified residence that secures the loan
If you draw from your HELOC to pay off credit card debt, fund college tuition, take a vacation, or buy a car, that interest is personal interest under IRC Section 163(h)(1) and produces no deduction.
Qualifying vs. Non-Qualifying HELOC Use
What Is the $750,000 Acquisition Debt Limit?
The deduction applies only to acquisition debt, defined as debt used to buy, build, or substantially improve the home. The total acquisition debt across all loans secured by the same property (your first mortgage plus any HELOC amount used for home improvement) cannot exceed $750,000 for mortgages originated after December 16, 2017 ($375,000 for married filing separately).
If your first mortgage alone equals $750,000, your HELOC interest produces no additional deduction even if you use the proceeds to improve the home. For mortgages originated on or before December 16, 2017, the older $1,000,000 limit ($500,000 MFS) still applies to that grandfathered debt.
The OBBBA made the $750,000 limit permanent. Without it, the TCJA's limitation would have expired after 2025 and reverted to the prior $1,000,000 cap for all mortgages.
How to Track HELOC Use of Proceeds
Your lender reports total interest paid on Form 1098. That form does not distinguish between interest on proceeds used for home improvement versus personal expenses. Tracking the purpose of each draw is entirely your responsibility.
The best practice is to maintain a simple log of each HELOC draw showing the date, amount, and purpose. If you use the HELOC for a mix of qualifying and non-qualifying purposes, you must allocate interest between the two on a reasonable basis. The IRS tracing rules under Temporary Regulation Section 1.163-10T govern this allocation.
Does the OBBBA Restore the PMI Deduction in 2026?
Yes. The OBBBA revived the private mortgage insurance (PMI) deduction as qualified mortgage interest under IRC Section 163(h)(3)(E) for premiums paid on or after January 1, 2026. PMI is a separate item from HELOC interest, but homeowners who carry both PMI and a qualifying HELOC can claim both as mortgage interest on Schedule A. See our guide on the mortgage insurance deduction in 2026 for the specific AGI phaseout ranges and eligibility rules.
Check current IRS guidance for the exact AGI phaseout range on the PMI deduction, since the OBBBA reset the thresholds from where they stood before the deduction previously expired.
Can You Claim HELOC Interest Without Itemizing?
No. HELOC interest is an itemized deduction on Schedule A. If your total itemized deductions, including mortgage interest, state and local taxes up to the OBBBA's $40,000 SALT cap, and charitable contributions, fall below your standard deduction, you receive no tax benefit from the HELOC interest regardless of how you used the proceeds.
Most homeowners with significant HELOC interest combined with property taxes and state income taxes will have total itemized deductions that clear the standard deduction threshold, making Schedule A worthwhile.
Questions about whether your HELOC interest qualifies or whether itemizing saves you money? Contact TS CPA for a free consultation. We respond within the same day.