Are Home Equity Loans Tax Deductible for Property Improvements?

Home equity loan and HELOC interest is tax deductible only when the funds are used to buy, build, or substantially improve the home that secures the loan. This rule has been in place since the Tax Cuts and Jobs Act, and it remains the IRS's position through 2026. Use the funds for anything else — debt consolidation, a car, tuition — and the interest is not deductible.

What qualifies as a 'substantial improvement': additions, kitchen and bath remodels, new roofs, exterior siding, landscaping that adds value, and major system replacements. Routine repairs and maintenance do not qualify. A vacant property revival that includes exterior painting, landscaping, and remodeling generally qualifies; pure cleanup and debris removal generally does not.

Practical limits to know: the total mortgage plus home equity debt eligible for interest deduction is capped at $750,000 for loans originated after December 2017 ($375,000 if married filing separately). Older loans use a $1 million cap. Most SC homeowners are well under either threshold, but high-value markets like Charleston peninsula can hit it.

Documentation matters more than people realize. Keep contractor invoices, before/after photos, and bank records showing the loan proceeds went directly to the improvement. The IRS will disallow the deduction without a clear paper trail. Talk to a CPA before assuming any deduction — this article is general information, not tax advice.