Definition
Debt secured by a home that exceeds acquisition indebtedness, on which interest was historically deductible but is no longer deductible for tax years 2018-2025 under current law.
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Home equity debt is debt secured by your home that exceeds the acquisition indebtedness (the original mortgage or refinance for the original amount). Typically, home equity loans or cash-out refinances create home equity debt. Before 2017, interest on home equity debt up to $100,000 was deductible. Recent tax law suspended this deduction through 2025, making home equity loan interest non-deductible. This affects many homeowners who relied on home equity loans for various purposes. However, if you use home equity loan proceeds for home improvements, those might qualify as acquisition indebtedness (improving the cap limit), making the interest deductible. The deduction suspension expires after 2025; Congress will likely extend or alter it. Understanding home equity debt is important for borrowing strategy—it affects the tax-deductibility of home loans. Some argue home equity loans should be avoided until the deduction is restored.
Pro Tip
Don't borrow via home equity loans for general purposes—interest isn't deductible. If borrowing for home improvements, structure as refinance to maximize acquisition indebtedness (deductible) versus home equity debt (non-deductible).
Example
A homeowner has a $500,000 mortgage (acquisition indebtedness) and takes a $100,000 home equity loan. Interest on the home equity loan would have been partially deductible before 2017, but is currently non-deductible.