Unlock Your Home Equity with Figure
- Approval in 5 minutes. Funding in as few as 5 days
- Borrow $20K-$400K
- Consolidate debt or finance home projects
- Fastest way to turn home equity into cash
- 100% online application
Home equity lines of credit (HELOCs) remain a powerful financial tool for homeowners with seven-figure properties. But the tax deductibility of HELOC interest is a topic surrounded by myths, especially following the 2017 Tax Cuts and Jobs Act (TCJA). As 2025 tax season approaches, it’s crucial for affluent homeowners to understand how the IRS treats HELOC interest deductions under current laws.
In this article, we’ll break down the current tax rules, how to qualify for deductions, and strategic insights that high-net-worth individuals need to know.
What Is a HELOC and Why Do Seven-Figure Homeowners Use It?
A HELOC is a revolving line of credit secured by your home’s equity. For homeowners with properties worth $1 million or more, HELOCs can offer:
- Access to large amounts of capital
- Flexible interest-only payments
- Strategic tax benefits when used correctly
Many seven-figure homeowners use HELOCs for remodeling, investing in additional properties, or even consolidating higher-interest debt. However, not all uses of HELOC funds qualify for a tax deduction.
HELOC Tax Deduction Rules in 2025
IRS Requirements for Deductibility
The IRS permits interest deductions only if the borrowed funds are used to “buy, build, or substantially improve” the home that secures the HELOC. Here are the key requirements:
- Primary or Second Home: The property must be the taxpayer’s primary or secondary residence.
- Qualified Use of Funds: Interest is only deductible when funds are used to improve the property securing the HELOC.
- $750,000 Loan Limit: Combined mortgage and HELOC balances must not exceed $750,000 (for married couples filing jointly) to deduct interest in full.
Example: You open a $300,000 HELOC and use $200,000 to remodel your kitchen. You can deduct the interest on that $200,000 if your total mortgage-related debt stays within the $750,000 cap.
Example: If you use HELOC funds to invest in a business, pay off credit cards, or buy a boat, the interest is not deductible.
Common Scenarios for Affluent Homeowners
1. Home Renovations
If you take a HELOC to build a guest house, modernize your kitchen, or add solar panels, the interest is typically deductible.
2. Debt Consolidation
Paying off personal debt with a HELOC may be financially savvy, but interest is not tax deductible unless the original debt was home acquisition debt.
3. Investment in Rental Property
If you use a HELOC on your primary home to fund improvements on a rental property, the interest may be deductible—but only under Schedule E, not as a personal deduction.
Always consult a tax advisor for mixed-use fund allocation strategies.
Strategies to Maximize HELOC Tax Benefits
Maintain Detailed Records
Track how every dollar of your HELOC is used. The IRS requires documentation to prove qualified use.
Stay Within the $750,000 Limit
If your total mortgage + HELOC exceeds this cap, only a portion of the interest will be deductible.
Align with Tax Advisors
Ensure your financial planner and tax professional work together to structure HELOC usage for optimal tax efficiency.
Internal Resources You May Like
- How to Use a HELOC to Fund Real Estate Investments
- 2025 Mortgage Deduction Limits Explained
- How to Use a HELOC for Renovations
Frequently Asked Questions (FAQ)
Can I deduct HELOC interest on a second home?
Yes, if the second home secures the HELOC and the funds are used to improve that property.
Is HELOC interest deductible for rental properties?
Possibly. If used for improvements on a rental property, it may be deductible under rental property rules—not as a personal deduction.
How much of my HELOC can I deduct?
Interest on up to $750,000 of total mortgage-related debt (including HELOCs) is deductible, if used for qualified purposes.
Need help determining if your HELOC interest is deductible in 2025?
Speak with a Tax Pro today for a personalized review.
Thinking about using your HELOC to renovate?
Get our free Home Renovation Budget Template.
Maximize your HELOC tax benefits before filing season.
Download our 2025 HELOC Deduction Checklist.
Read Next
Unlock Your Home Equity with Figure
- Approval in 5 minutes. Funding in as few as 5 days
- Borrow $20K-$400K
- Consolidate debt or finance home projects
- Fastest way to turn home equity into cash
- 100% online application
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
