When financing a major project like a kitchen renovation using your home’s equity (via a Home Equity Loan or HELOC), a significant financial benefit often comes into play: the potential to deduct the interest paid on the loan from your federal income taxes.
However, this deduction is subject to strict rules set by the IRS, which were updated by the Tax Cuts and Jobs Act of 2017 and are currently in effect through 2025.
The Key Rule: Use of Funds is Everything
Under current tax law (2018-2025), the deductibility of interest on a HELOC or Home Equity Loan hinges entirely on how the money is used.
- Deductible Interest: Interest is deductible if the borrowed funds are used to “buy, build, or substantially improve” the home that secures the loan.
- Qualifying Use: A major kitchen renovation is a prime example of a “substantial improvement” because it adds value to the home, extends its useful life, and changes the structure or function of the space.
- Non-Deductible Interest: Interest is not deductible if the funds are used for personal expenses, such as paying off credit card debt, funding college tuition, or purchasing a car, even if the loan is secured by your home.
This means that interest paid on your Home Equity Loan or HELOC for your kitchen remodel can be deducted, provided you meet the other criteria.
Deduction Limits and Requirements
Even if the funds are used for a qualifying home improvement like a kitchen renovation, two major limits apply:
| Requirement | Details |
| Debt Limit | The total combined debt (original mortgage, plus HELOC/HELoan) on your main and second home that qualifies for the deduction is capped at $750,000 ($375,000 if married filing separately) for loans taken out after December 15, 2017. |
| Itemization | You must itemize your deductions on Schedule A (Form 1040) of your tax return. If your total itemized deductions (which include property taxes, charitable contributions, and mortgage interest) are less than the standard deduction, taking the standard deduction will save you more money, making the HELOC interest deduction essentially obsolete for you. |
Your Documentation is Crucial
Because the IRS requires proof of how the funds were used, homeowners must meticulously document the kitchen renovation project.
- Keep all receipts, invoices, and contracts from the general contractor, cabinet suppliers, and material purchases.
- Save bank statements or transfer confirmations that show the home equity funds being moved directly to pay for the renovation expenses.
- You will receive Form 1098 from your lender, which reports the total mortgage interest paid during the year.
Disclaimer: The rules regarding the deductibility of home equity interest are complex and subject to change (the current law is set to expire after the 2025 tax year). You should always consult with a qualified tax professional to determine your eligibility and ensure you are meeting all documentation requirements.
