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Is a home equity line of credit tax-deductible?

Q: Is a home equity line of credit tax-deductible?

A:  One of the benefits of homeownership is the availability of a tax deduction for the interest paid on a mortgage. For interest paid on for many home equity lines of credit, 2017 will be the last year that interest on a home equity loan or home equity line of credit will be deductible.

Home equity loans and taxes

If you took out a home equity line of credit at the time you purchased your home in order to finance the acquisition of the property, such as an 80-10-10 loan with an 80-percent first mortgage, a 10-percent down payment and a 10-percent home equity loan, that mortgage is considered "home acquisition debt" by the IRS. Tax-deductible home acquisition debt is limited to $1 million (or $500,000 if married but filing separately) for loans originated before December 14, 2017; mortgages made after this date will be subject to $750,000 ($375,000 for singles or married filing separately).

If you took out your home equity line of credit at a later date to make "substantial" home improvements and it is secured by your home, it is also considered home acquisition debt and is tax-deductible.

However, after the 2017 tax year, interest on home equity debt for purposes other than "substantial" home improvement will no longer be deductible. There is also no "grandfathering" provision for existing loans and lines of credit, so 2017 will be the last year for many homeowners to claim this deduction. Formerly, interest on loans or lines up to $100,000 ($50,000 if married filing separately) could be deducted when home equity debt was used regardless of the purpose of the loan.

IRS assistance

IRS Publication 936 addresses the topic of the tax deductibility of a home equity loan and a home equity line of credit with tables and examples that could apply to your personal situation. You may also want to consult with a tax professional to clarify the tax-deductible status of your home equity line of credit.

Michele Lerner contributed to this answer


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