What Are The Tax Advantages Of A Home Equity Loan?
By Bob RedtreeIf you take the time to find the right home equity loan, you can reap the benefits at tax time.
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Before taking out a home equity loan, be sure that you do some research to avoid the potential pitfalls that may be part of your agreement with the lender if you fail to read the fine print. You should also determine if you will be able to deduct some or all of the interest you pay from your taxes when you itemize your deductions. Such a loan will enable you to transfer other debt with non-deductible interest—including credit cards and car loans—which makes it seem like a wise move. Also, many people make use of a home equity loan as participants in a debt consolidation program.
Features of a home typical equity loan
Such a loan comes with a fixed interest rate, it is usually distributed with a lump-sum payment, and you can access it as you see fit. If you know that you will not need the full amount made available to you to make home improvements or pay off other loans, simply borrow a lesser amount in order to avoid overspending.
Tax rules that apply with a home equity loan
Taxpayers may claim a deduction for the interest they pay on a loan they secure with their “first” or “second” home, and this applies to most home equity loans. Still, confusion can arise if the amount of the mortgage exceeds the home’s actual value, or if they own more than one “second” home. (Note that, generally speaking, you will only be able to deduct the interest paid on the first $100,000 of the loan.) In regard to the alternative minimum tax (AMT), the deduction will only apply if you use the funds to make home improvements.
Related posts:
- What Is A Closed End Home Equity Loan?
- Am I Eligible For A Home Equity Conversion Loan?
- Can I Pay Off A Home Equity Loan Early?
- How Can I Calculate How Much I Can Take Out On A Home Equity Loan?
- What Is A Home Equity Loan?