The Tax Advantages of Home Equity Loans
Does taking advantage of cheap loans with tax deductible interest payments appeal to you? A lot of homeowners know refinancing their mortgages with home equity loans has advantages. These loans can be used to consolidate debts with high interest rates into one monthly payment that’s usually less than the sum total of the multiple payments.
What some people don’t realize is that because their loan is secured, they can probably deduct payments on home equity loan interest. Although it varies by the type of home equity loan you take out, interest payments are usually the majority of your monthly payment. Deducting all that money at tax time can be a big help.
Will you quality for the deduction? If your first mortgage and home equity loan combined don’t exceed the value of your home, you will most likely be able to deduct interest payments. It’s a good idea to check with your accountant or a tax advisor to be sure.
Deducting interest payments is one of the truly unique features of a home equity loan. Credit card, auto loan and personal loan interest payments are unsecured, so you will never be able to deduct them on your taxes. Some student loan interest payments are tax deductible, but you must qualify for this tax break, as well.
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