Is Home Improvement Loan Interest Tax-Deductible?

Interest on a loan you used to renovate your home can be deductible, but only if the loan is secured by the home you improved, and only if you itemize. Both conditions are required for eligibility.

A “home improvement loan” at most lenders is an unsecured personal loan, and unsecured means no deduction as home mortgage interest, no matter what you spent the money on. A home equity loan, a HELOC, or a cash-out refinance can qualify, because your house is the collateral. But that fact also makes them riskier.

When is home improvement loan interest tax-deductible?

Whether interest is deductible largely depends on whether you use your home to secure the loan and what you use the funds for. For example, the interest on a home equity loan or HELOC secured by your home may qualify when you use the money to make substantial improvements to that home.

When it is deductible

The IRS doesn't treat every home expense as a substantial improvement. A qualifying improvement must add value to your home, extend its useful life, or adapt it to a new use. Remodeling a kitchen, adding accessibility features, or replacing major systems like your HVAC or roof could qualify. Repainting a room or replacing a broken appliance doesn't qualify as a substantial improvement, but if painting is part of a larger improvement, it could.

When it is not deductible

You generally can't deduct home equity loan or HELOC interest when you use the borrowed money for personal expenses unrelated to buying, building, or substantially improving the home.

Suppose that you take out a HELOC loan and use the proceeds to pay off credit card debt. Even though your home secures the HELOC, the interest won't qualify for the home mortgage interest deduction because you didn't apply the cash toward the home securing the loan.

One other caveat: credit card debt is unsecured. A card issuer can sue you or send the account to collections, hurting your credit, but it can't take your house. A HELOC or home equity loan exposes your home to risk of foreclosure if you fall behind.

If you're considering moving card balances onto a home loan, talk with a licensed attorney or a nonprofit credit counselor first. The National Foundation for Credit Counseling can connect you to free or low-cost counseling at 800-388-2227.

Read more >> Are Personal Loans Tax-Deductible?

Types of home improvement loans — and what’s deductible

The type of financing you choose can affect whether the interest qualifies.

Home equity loans and HELOCs

A home equity loan lets you borrow against the equity in your home, while a HELOC gives you a line of credit secured by the home. Both use your home as collateral, which meets the IRS’s security requirement. You still have to spend the money on that same home, and you still have to itemize.

Keep documentation showing how you spent the proceeds. If some or all of it went into the home, the interest on that portion is deductible, assuming you itemize and stay within the debt cap.

Personal loans

A personal loan is another common way to finance a renovation without using your home to secure the loan. But that’s typically what disqualifies the interest, no matter if you put every dollar into a new roof, and even if it’s marketed as a “home improvement loan.”

The trade-off is that falling behind doesn’t expose your home to foreclosure, and that’s worth weighing against the deduction that only helps if you itemize.

Cash-out refinancing

A cash-out refinance pays off your existing mortgage and replaces it with a bigger one, returning the difference as cash. Unlike a home equity loan that sits alongside your first mortgage, with cash-out refinancing, there’s only one loan with a new rate and term that applies to the whole balance.

The part that paid off your old mortgage is still treated as mortgage debt, up to what you owed before the refinance. Interest on the cash you take out is deductible only to the extent you use it to buy, build, or substantially improve the home securing the loan.

Read more >> Are Home Equity Loan Interest Payments Tax-Deductible?

How to claim the deduction

You must itemize to claim the deduction. Add up your itemized deductions first, and then compare the total to standard deductions for tax year 2026 (the return you'll file in 2027) to find the higher amount:

You’ll generally get a Form 1098 if you paid $600 or more in mortgage interest on any one loan. If you paid deductible interest that isn’t on a 1098, report it on Schedule A, and attach a statement showing the difference.

A 1098 in the mail doesn’t mean the interest qualifies. Interest in Box 1 from a home equity loan or HELOC is deductible only if the money went to buy, build, or substantially improve the home securing it.

Documentation you need

If you are claiming home loan interest on your taxes, have the following at hand:

• Loan documents
• Your Form 1098
• Contractor invoices, and paid receipts, permits and plans
• Other records that prove how you used the money

‍You don't have to pay for tax help. The IRS runs Free File for most filers and VITA, which offers free in-person help for people under certain income thresholds, people with disabilities, and limited-English speakers. TCE covers anyone 60 or older. Reach out to 800-906-9887 to find a site, or call AARP Tax-Aide, which runs most TCE sites, at 888-227-7669.

If your situation is more complicated, talk with a CPA or enrolled agent for guidance specific to your situation. Enrolled agents are licensed by the IRS and generally cost less.

How much the debt cap covers

The home mortgage interest deduction has limits based on the amount and type of mortgage debt. You can deduct interest on the first $750,000 of debt secured by the home ($375,000 if you're married filing separately). That's every loan against the house combined, your first mortgage included, not just the improvement loan.

Say your mortgage balance is $700,000 and you take a $100,000 home equity loan to add a room. That puts you at $800,000, or $50,000 over the cap. You don't lose the deduction, rather you deduct the interest on the first $750,000 and not the rest.

These limits were originally scheduled to expire after 2025. The One Big Beautiful Bill Act, signed in July 2025, removed the expiration and made them permanent.

Bottom line

The interest on your home improvement loan may be deductible, but the money must go back into the home that secures the loan, you have to itemize, and even then, it returns a small part of interest you've already paid.

Meanwhile, the rate applies to the whole balance, every month, for as long as you're paying off the loan. And it's set at approval, based on your credit, before you sign anything. On a $20,000 loan over five years, the gap between the rate you'll land with good credit and a much higher one can run a few thousand dollars in interest.

A Kikoff Credit Account reports to all three bureaus and builds payment history that future lenders see. Plans start at $5 a month with no credit check.