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 don't
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.