Are you still asking "Can I expense this...?" Use our free tool!
If you own a rental property, a Home Equity Line Of Credit (HELOC) can be a handy way to borrow money for repairs or improvements. But one of the first questions most landlords ask is, “Can I deduct the interest on my taxes?”
The answer is often yes, but only if you play by the IRS rules and keep good records.
So, is HELOC interest tax deductible on rental property? With the 2025 Tax Relief Act making some mortgage interest rules permanent and adding new flexibility starting in 2026, it’s worth a quick refresher on what’s allowed right now.
A HELOC is a revolving loan secured by your home. You can draw funds as needed up to a set limit, and pay interest only on what you’ve borrowed. For tax purposes, the key issue isn’t just that you borrowed from a HELOC, it’s what you spent the money on.
Under current rules in 2025, interest on a HELOC may be deductible if the money is used to buy, build, or substantially improve the home that secures the loan. If you spend the borrowed money on personal expenses like vacations or credit cards, that interest is not deductible.
When it comes to rental property, you can usually deduct interest on money you borrow to improve, repair, or operate the property. But the IRS expects you to document exactly how you used the borrowed funds.
In 2025, you can deduct HELOC interest for your rental property if:
If you use part of the HELOC for the rental and part for personal bills, you have to split the interest and only deduct the rental portion on your Schedule E.
Remember, without proper documentation, you risk losing the deduction.
The 2025 Tax Relief Act law gives rental owners more flexibility starting in 2026. Under the new rule, you’ll be able to deduct interest on a loan used for your rental property, even if that loan is secured by a different property, like your personal home, as long as you can trace the funds to rental use. This is a big help if you want to tap equity in one property to fix up another.
Yes, you can often deduct HELOC interest on a rental property, but only the part that’s tied directly to that rental.
If you’d like us to look at your HELOC statements, rental expenses, and all the receipts, we’d be glad to help you map it all out. Let’s make sure you get every deduction you deserve, and avoid surprises later in your tax return.
Book a time with our team and we’ll get right back to you.
Until next time!
Yes, but only the portion of the HELOC interest that traces to the rental property's basis or improvements. The IRS interest tracing rules require you to follow the money. If you borrowed $100,000 against your primary home's HELOC and used $80,000 to buy or improve a rental, 80% of the HELOC interest is deductible against the rental income on Schedule E. The remaining 20% follows whatever you spent it on (likely personal use, which is non-deductible since the 2018 tax reform).
A mortgage taken out directly on the rental property is straightforward. The interest is fully deductible as a rental expense on Schedule E. A HELOC on your primary home that is used to buy or improve a rental is also deductible, but you have to document the use carefully. Keep records of the HELOC draw dates, what each draw paid for, and how the funds were transferred. Mixed-use HELOCs (where you used some funds for the rental and some for personal use) require allocating the interest proportionally each year.
It matters a lot. The IRS can challenge the deduction without contemporaneous records (records kept at the time of the transactions, not reconstructed later). The simplest documentation is opening a separate bank account for the HELOC funds and only spending from that account on the rental property. Bank statements then trace every dollar from HELOC draw to rental expense. If you commingled funds, you may need a CPA to allocate the interest proportionally based on a tracing methodology the IRS will accept.
Adam Traywick, CPA is the President and founding CPA of Adam Traywick, LLC, a Fort Worth CPA firm working with small business owners across home-services trades, hair salons, real estate, and insurance. He has over 20 years of experience helping owners optimize taxes, run cleaner books, and avoid the surprises that come from once-a-year accountants.
