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