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How Home Equity Loan Tax Deduction Works
Author David Schneider | Dec 03,2007
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One of the top benefits associated with home equity loans is that borrowers may be able to receive a tax deduction based on the interest paid on the loan. You should always consult a tax advisor before taking out an equity loan for the tax deduction. The ability to take the deduction and the amount of the deduction may vary based on your tax bracket and personal financial situation.
Deducting Home Equity Loan Interest
Home equity loans are considered first or second mortgages. The tax laws state that taxpayers may be able to claim a tax deduction on interest paid on a loan that is secured by their first or second home. There can be some confusion on the part of taxpayers when they have multiple homes or if the mortgages on the property exceed the market value of the home. For details on qualifying for a home equity loan tax deduction, you should refer to the IRS Publication 936 Section 1.
Advantages of Deducting Home Equity Loan Interest
The main advantage of deducting home equity loan interest is that you save money. This may be best understood in the form of an example. Let’s assume that you took out a home equity loan to consolidate credit card debt (which is not a tax-deductible debt). With the home equity loan, you have turned a non-deductible debt into a deductible one. While you still have to pay the interest on the home equity loan and reduce the balance of the loan, it has been turned into a tax-deductible event instead of just a debt situation.
Limitations on Deducting Home Equity Loan Interest
There are limitations on how much interest can be deducted on your home equity loan. Typically, you can deduct the whole amount of interest that you pay on the first $100,000 of a home equity loan. After the first $100,000 on an equity loan, the amount of interest that you can deduct varies. For complete deduction details, see IRS Publication 936 Section 2.
Resources for Equity Loan Tax Deduction Information
Since tax laws are very complex and change often, you need follow the law closely and have a resource to turn to for information. You should always consult your tax advisor before taking out a home equity loan to inquire about the tax deductibility. The IRS website at Irs.gov is also a reliable source of information.
One of the top benefits associated with home equity loans is that borrowers may be able to receive a tax deduction based on the interest paid on the loan. You should always consult a tax advisor before taking out an equity loan for the tax deduction. The ability to take the deduction and the amount of the deduction may vary based on your tax bracket and personal financial situation.
Deducting Home Equity Loan Interest
Home equity loans are considered first or second mortgages. The tax laws state that taxpayers may be able to claim a tax deduction on interest paid on a loan that is secured by their first or second home. There can be some confusion on the part of taxpayers when they have multiple homes or if the mortgages on the property exceed the market value of the home. For details on qualifying for a home equity loan tax deduction, you should refer to the IRS Publication 936 Section 1.
Advantages of Deducting Home Equity Loan Interest
The main advantage of deducting home equity loan interest is that you save money. This may be best understood in the form of an example. Let’s assume that you took out a home equity loan to consolidate credit card debt (which is not a tax-deductible debt). With the home equity loan, you have turned a non-deductible debt into a deductible one. While you still have to pay the interest on the home equity loan and reduce the balance of the loan, it has been turned into a tax-deductible event instead of just a debt situation.
Limitations on Deducting Home Equity Loan Interest
There are limitations on how much interest can be deducted on your home equity loan. Typically, you can deduct the whole amount of interest that you pay on the first $100,000 of a home equity loan. After the first $100,000 on an equity loan, the amount of interest that you can deduct varies. For complete deduction details, see IRS Publication 936 Section 2.
Resources for Equity Loan Tax Deduction Information
Since tax laws are very complex and change often, you need follow the law closely and have a resource to turn to for information. You should always consult your tax advisor before taking out a home equity loan to inquire about the tax deductibility. The IRS website at Irs.gov is also a reliable source of information. |
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