Are home equity loans tax-deductible?
This article is for educational purposes only. JPMorgan Chase Bank, N.A. does not currently offer home equity loans. Any information described in this article may vary by lender.
JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.
Quick insights
- Home equity loans can be tax-deductible, but it’s important to stay informed about changing tax laws.
- For a home equity loan to be tax-deductible, the loan generally must be used to buy, build or improve the home that secures the loan.
- A tax professional or financial advisor can provide personalized advice on potential tax benefits.
Home equity loans can provide affordable access to funds, often with tax benefits, but the lender could enforce its rights for non-payment. Understanding the pros and cons, exploring other financing options and staying updated on tax laws at IRS.gov can be helpful.
Can you write off interest on home equity loans?
The interest on a home equity loan may be tax-deductible, but only under specific conditions. Generally, the loan must be used for home improvement or to buy, build or renovate the property that secures the loan. The IRS might specify additional qualifying purposes. Home equity loan interest is typically non-deductible if the loan is used for personal expenses like vacations or credit card debt. There are also limits on how much mortgage debt qualifies for a deduction.
How to deduct home equity loan interest
To deduct home equity loan interest, it’s important to understand specific rules set by the IRSOpens overlay. A tax professional or financial advisor can provide personalized advice on maximizing your tax benefits. They can help ensure you’re meeting all IRS requirements and help with filing the necessary forms.
General requirements
Here’s a breakdown of several key qualifications for deducting home equity loan interest:
- Qualifying home: The home securing the loan must be a qualifying residence, which generally means your primary home or a second home. The IRS permits deductions on home equity loan interest for these properties only.
- Use of funds: The interest on home equity loans is generally deductible for certain home improvements. If the loan is used for other purposes, such as paying credit card debt or personal expenses, the interest is not deductible.
- Debt is secured by the home: The loan must be secured by the home. This means the lender must have a legal claim on the property in case of default.
- Interest deduction: The interest is deductible as mortgage interest on Schedule A of your federal tax return if you itemize deductions. If you do not itemize, you cannot claim the deduction.
- Limits: Deductible interest applies to up to $750,000 of total mortgage debt ($375,000 for married filing separately). For the latest information and figures, visit IRS.gov.
Risks and benefits of home equity loans
Home equity loans may offer benefits like lower interest rates and potential tax deductions, but they also carry risks, such as the threat of foreclosure if you default. It’s essential to explore alternative financing options and stay updated on tax law changes to make informed decisions.
In summary
Understanding the tax implications of a home equity loan is important for maximizing potential benefits. By adhering to IRS rules on loan purposes, debt limits and expenses, you can determine if you qualify for a deduction. For personalized guidance, working with a tax professional can ensure you meet all requirements and file your taxes correctly.
