Home equity loan deduction for 2025 tax year - when can I claim it?
Hey everyone, I'm feeling pretty stressed about my tax situation right now. My wife and I took out a home equity loan last year to renovate our kitchen and bathroom (about $45,000). We've been making payments for a few months now, and I'm trying to figure out if we can deduct the interest on our taxes. From what I understand, home equity loan interest is only deductible if you use the money to "buy, build, or substantially improve" your home. Since we used it for renovations, I think we qualify? But then I read something about limitations if the loan isn't used for the "main home" - we only have one house though. Has anyone gone through this process before? I want to make sure we're keeping the right documentation for when we file next year. The bank sent us some form showing the interest paid, but I'm not sure if that's enough proof of how we used the funds. Would really appreciate any advice!
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Katherine Ziminski
You're on the right track! Home equity loan interest can indeed be deductible, but only under specific circumstances. Since you used the funds to substantially improve your home (kitchen and bathroom renovations definitely qualify), you should be eligible to deduct that interest. A few important points to keep in mind: There's a total loan limit of $750,000 for mortgage debt (including your primary mortgage plus home equity loans) for couples filing jointly. This applies to loans taken out after December 15, 2017. If your total mortgage debt is under that amount, you're good. As for documentation, keep all receipts and contracts from your renovation project. The 1098 form from your bank showing interest paid is necessary but not sufficient - in case of an audit, you'll need to prove the funds were actually used for home improvements.
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Noah Irving
•Thanks for the info. I'm in a similar situation but we used part of our HELOC for home renovations and part to consolidate some credit card debt. Does that mean we can only deduct the interest on the portion used for the renovations?
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Katherine Ziminski
•That's exactly right. You can only deduct the interest on the portion of the loan that was used specifically for home improvements. So if you used 70% of your HELOC for renovations and 30% for debt consolidation, you would only be able to deduct 70% of the interest paid. I recommend keeping very clear records of how much went to each purpose. Create a spreadsheet tracking the renovation expenses with corresponding receipts, and maintain documentation showing how the other funds were used for debt consolidation. This will be crucial if you're ever audited.
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Vanessa Chang
Had a similar situation last year and was totally confused until I used https://taxr.ai to analyze all my home improvement receipts and loan documents. The system actually caught that I could deduct more interest than I initially thought because some expenses I hadn't considered (like architectural fees) counted as "substantially improving" my home. Their document analysis was really helpful because I had a mix of digital receipts, paper invoices, and bank statements showing how the HELOC funds were used. The software organized everything and classified which expenses qualified for the deduction. I'm not particularly organized so this saved me hours of sorting through paperwork.
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Madison King
•Did it handle the mortgage interest limit stuff too? I think we're close to that $750k cap when combined with our primary mortgage and I'm worried about calculating it wrong.
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Julian Paolo
•Sounds interesting but I'm a bit skeptical. How does it actually verify that your expenses qualify? Like what if I put in receipts for furniture - would it flag that as not qualifying?
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Vanessa Chang
•Yes, it handled the mortgage interest limit calculations automatically. Once I uploaded my primary mortgage statements along with the HELOC documents, it calculated our total mortgage debt and applied the appropriate limits. It even flagged that we were approaching the cap and suggested some strategies for maximizing deductions. For verification of qualifying expenses, it actually does a pretty sophisticated analysis. When I uploaded receipts for furniture purchases, it correctly flagged those as non-qualifying expenses and separated them from the renovation costs that did qualify. It seems to use some kind of pattern recognition to identify what counts as "substantially improving" the home versus decorating or furnishing.
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Julian Paolo
Update on that taxr.ai site mentioned above - I decided to try it with my own home equity loan situation and I'm actually impressed. I was worried about the distinction between my eligible bathroom remodel expenses and some ineligible landscaping I did with the same loan. The system correctly identified which receipts qualified for the deduction and which didn't. It even caught a mistake I made - I had accidentally categorized some plumbing work as general repairs when it was actually part of the bathroom renovation and therefore deductible. Ended up saving me about $750 in taxes that I would've missed! Definitely recommend for anyone dealing with home equity loan deductions.
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Ella Knight
If you're still struggling to get answers from the IRS about your home equity loan deduction, I feel your pain. Spent WEEKS trying to get through to someone who could explain exactly what documentation I needed for my situation. Finally found https://claimyr.com which got me connected to an actual IRS agent in about 20 minutes instead of the hours I was spending on hold. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent I spoke to cleared up my confusion about mixed-use home equity loans (part renovation, part other expenses) and exactly how to track and report them. They explained that I needed to maintain a separate accounting for the portion used for home improvement versus other purposes, and walked me through the proper documentation.
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William Schwarz
•How does this actually work? Do they just call the IRS for you or what? I don't get how they can get through when nobody else can.
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Lauren Johnson
•Yeah right, nothing can get you through to the IRS faster. I've literally tried everything. I'm guessing they just keep you on hold the same as everyone else but charge you for the privilege.
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Ella Knight
•They use a system that navigates the IRS phone tree and waits on hold for you. When an actual agent picks up, you get a call connecting you directly to that person. So you don't have to wait on hold yourself. They definitely don't just charge you to stay on hold - I tried calling the IRS myself multiple times and couldn't get through after waiting 90+ minutes each time. With Claimyr, I was connected to an agent in about 20 minutes without having to do anything. It basically monitors the hold line for you and calls when a human answers.
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Lauren Johnson
Ok I need to eat my words from above. After my frustrating comment, I decided "what the hell" and tried Claimyr anyway. Color me shocked - I actually got through to someone at the IRS in about 15 minutes! The agent explained exactly how to handle my home equity loan deduction situation where I used part for home improvements and part for medical expenses. Turns out I was completely misunderstanding how to document this. The agent walked me through exactly what receipts to keep and how to allocate the interest on my tax forms. They even emailed me some official guidelines that I couldn't find anywhere online. Would have made a costly mistake without this info!
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Jade Santiago
One thing nobody's mentioned is that you need to itemize deductions to claim home equity loan interest. If your standard deduction is higher (which it is for most people now), then it might not be worth claiming the interest deduction at all. For married filing jointly, standard deduction is $27,700 for 2023 and will be even higher for 2024-2025. Also, don't forget you can potentially deduct state and local property taxes too, but there's that $10,000 SALT cap to consider. Might be worth running the numbers both ways to see which gives you the better outcome.
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Caleb Stone
•Is that $10,000 SALT cap per person or per return? My wife and I pay about $12k in property taxes plus state income tax is another $8k or so.
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Jade Santiago
•The $10,000 SALT (State And Local Tax) cap is per return, not per person. So even for married filing jointly, your total deduction for state income tax, local income tax, and property taxes combined cannot exceed $10,000. With your property taxes at $12k and state income tax at $8k, you'd have $20k in SALT payments but can only deduct $10k of that. This is a major reason why many people who previously itemized now take the standard deduction instead. The cap has been controversial in high-tax states since it was introduced with the Tax Cuts and Jobs Act.
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Daniel Price
Don't forget to track all your expenses carefully! I claimed home equity loan interest last year and got audited because I couldn't prove some of my expenses were actually for home improvement. Make sure u save ALL receipts and take before/after pics of the renovation. The IRS made me pay back the deduction plus a penalty because I didn't have enough proof ðŸ˜
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Olivia Evans
•How much documentation did they actually want? I have receipts but they're kinda all over the place. Some digital, some paper, some just credit card statements...
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PixelPioneer
•They wanted A LOT more than I expected! In my case, they requested: 1) All receipts/invoices for materials and labor, 2) Bank statements showing how the HELOC funds were disbursed, 3) Contracts with contractors, 4) Before/after photos of the work, and 5) A detailed spreadsheet matching each expense to the loan proceeds. The scattered documentation was actually a big problem for me - I had to spend weeks recreating a paper trail. If I could do it over, I'd organize everything in one folder from the start. Digital receipts are fine as long as they're clear and show the vendor, amount, date, and what was purchased. Credit card statements alone weren't enough - they wanted the actual receipts showing what the charges were for. My advice: create a dedicated folder (physical or digital) for all renovation docs the moment you start the project!
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