Home Equity Loans Tax Deductions - What are the Tax Advantages of a Home Equity Loan?
Depending on how you used your home equity loan, there are a number of
tax deductions available for your home equity loan interest. The
largest deductions are available for home improvements. However, for loans
used to consolidate debt or pay for college, you can still deduct
interest with some limits. And if you use the loan for investment purposes,
you can also deduct interest charges.
Home Equity Loans Used For Home Improvements
Interest on home equity loans used to build or improve a first or
second home qualifies for the home acquisition debt deduction. With caps at
one million dollars, it has the largest limits. Any debt over this
limit may qualify for the home equity debt deduction.
If you take out a home equity loan 90 days after you purchased the
home, you can still deduct the interest even if you dont use the money for
home repairs. For example, you buy a house May 1 with cash. May 15 you
take out a home equity loan for $10,000 and use it to go on vacation.
You can still deduct the interest paid since you secured the loan before
90 days after buying the house.
Home Equity Loans Used For Other Expenses
Paid interest on home equity loans used to pay for college, credit card
debt, or other expenses qualify for tax deductions under home equity
debt. However there are limits on the debt amounts that qualify for this
deduction.
The home equity loan amount must be less than $100,000 (or $50,000 if
filing separately) or the fair market value of the house minus the
acquisition mortgage. The interest on any debt above these amounts, however,
may qualify for other tax deductions.
Deductions For Interest That Exceeds Limits
If you find that your home loan debt exceeds mortgage caps, you may
still be able to deduct the interest as an investment cost or business
expense. Otherwise, excess debt is considered personal debt and
non-deductible. But the next year, your home equity debt interest debt may
qualify if it meets all requirements. Before taking any tax deduction, verify
that IRS rules have not changed in the preceding year.
View our recommended
Home Equity Line of Credit lenders.
Carrie Reeder owns ABC Loan Guide, an online resource with information about Mortgage Brokers
Online and Mortgage Refinancing.
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