Personal Home Equity Loan Interest Deduction

Taking out a home equity loan can give you a little extra cash for things you might need, such as improvements for your home or a little help with college tuition. At tax time, you may wonder if you are eligible for any tax breaks for the interest you paid on the loan. It really depends. Either all of your interest, or a portion of it can be deductible up to $100,000 ($50,000 if file married filing separately).


When you take out a home equity loan for tuition, calculating your deduction is important. Here’s how to figure it out. If your home is valued at $200,000 and your mortgage is $150,000, that is a difference of $50,000. When you take out the home equity loan, you can deduct the interest you paid on up to $50,000 of the loan, because that is what your home value exceeds your mortgage. Regardless of if you take out a loan worth $70,000 or the full $200,000, you can only deduct interest for $50,000 of the loan.

Taxpayers who are subject to the alternative minimum tax, (AMT) are not eligible to deduct any home equity loan interest when determining their AMT.


You are able to deduct the full amount of interest when you use the loan to make home improvements. So if you borrowed $60,000 to add an addition to your home, because you are upgrading the property, you can deduct the full interest amount.