Archive for the ‘Home Equity Loan Tax’ Category

Home Equity Loan Tax Advantage

Saturday, May 5th, 2012

One advantage of home equity loan s is that they can be tax deductible. However, many of the home owners and consumers obtain such kind of loans without taking advantage of such benefits. Companies and employers are provided substantial cuts on these types of taxes from paying up specified earnings expenses. Here, they do not enjoy the said cuts on their mortgages. However, tax deduction can indeed be a home equity loan tax advantage.

Equity home loans are ones that are provided to borrowers based on the equity on their property homes. Lending companies calculate the value of the home and then compare such value the amount that was owed on the property. This is how they arrive at the amount of the home equity loan.

Home owners and borrowers these days are wise enough to know how to carefully scrutinize the terms as well as conditions of the contract when considering any home loan. They know how to specifically check on the small print parts of the contract. It will be better to be meticulous when it comes to home equity loan tax deductible matters as being enlightened on this will greatly help borrowers enjoy more savings.

Hence, for those who doubt and would ask – is home equity loan tax deductible? Yes, not all, but some of these loans are. All the borrower has to do is review the available contract and simply discuss with the lending company the possibility of any tax advantage on the loan. For those who are trying to obtain home loans for the first time, it is advisable to thoroughly study the equity home loans offered in order for them to know if the loan presented to them is the best one possible.

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Home Equity Loan Tax Deductions – Deducting Home Equity Interest

Monday, March 5th, 2012

Home equity interest is tax deductible under certain circumstances.

Interest is an itemized deduction if you paid the interest, where legally

responsible for the loan, and secured the loan with your home. If you

don’t meet these conditions, you can still deduct the interest, just

under another category.

Basic Requirements To Deduct Mortgage Interest

The IRS has three basic requirements that you must meet in order to

deduct mortgage interest. First, you have to be legally responsible for

the loan. You can’t deduct interest you pay for someone else’s loan.

The home equity loan also has to be a secured debt for a qualified

home. It either has to be your main home or second property. It cannot be

rented out or used for business purposes. If you do use a room as a

business office, that part of the house can be written off as a business

expense.

The final requirement is that you file a 1040 with itemized deductions.

Fully Deductible Interest Has Caps

In most cases, you will be able to fully deduct the interest you paid

on a qualifying loan. The loan has to be for the fair market value of

the property or less. Loans originating prior to October 13, 1987 are

automatically grandfathered in.

Loans after 1987 have caps on qualifying loan amounts. If the home

equity loan was taken out to purchase, construct, or improve a home, then

it qualifies for the entire deduction up to $1 million when filing

jointly. Home equity loan s used for other purposes qualify for deductions up

to $100, 000.

Special Cases For Interest Deductions

The IRS has also made provisions for military personal and ministers.

If you receive a non-taxed housing allowance, you can still deduct your

mortgage interest.

You can also deduct early payment fees for selling or refinancing your

home. In some cases, late payment fees can also be itemized.

Tax Laws Change

Before taking any actual tax deduction, double check with IRS

regulations to be sure you are in compliance. Each year tax laws change, so

check either with the IRS publications or an accountant. They will be able

to give you the most up to date information and possibly point out

additional deductions.

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Home Equity Loan Tax Deductions

Tuesday, January 31st, 2012

Interest – is an amount you pay for the use of borrowed money.

Several lenders are currenty offering amazing deals for 125% home equity loan s. As highly advertized as these loans are they don’t highly advertize that the interest payments on these loans are not neccessarily fully tax deductable.

To understand why these interest payments don’t qualify as tax deductable lets look at what is considered a tax deductable interest payment. The IRS website states that to be considered for full tax deductable interest your mortgage must fall into one of these three catagories:

Mortgages you took out on or before October 13, 1987 (called grandfathered debt).

Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if these mortgages plus any grandfathered debt totaled $1 million or less ($500, 000 or less if married filing separately).

Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if these mortgages totaled $100, 000 or less ($50, 000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2).

As described by the IRS to be considered as home equity debt the amount of the loan must be equal or less then the Fair Market Value of your home minus any outstanding debt from your first or second mortgage up to a loan amount of $100, 000.

For example, your home’s fair market value is $150, 000 your outstanding debt or mortgage is $115, 000. This means the equity that you have built from your home is $35, 000.

Now your looking to cash in and a lender offers you a 125% home equity loan, 125% x $150, 000 = $187, 500 subtract your outstanding debt of $115, 000 and you have qualified for a $62, 500 dollar loan. So finally lets divide this loan into two parts.

First $35, 000 is your secured home equity debt and $27, 500 is your unsecured home equity debt. The problem lies that as discussed before the tax exemption for interest payments

only covers the secured home equity debt amount, leaving you with the financial liability of paying off the interst on $27, 500 of your loan.

*Their is a notable exception in regards to the purpose of the home equity loan. If the loan is used for home improvement it can possibly be considered as a “home aquisition debt” and the interest payments may be deductable for a loan greater then your actual equity value.

The best course of action is to always speak to a tax advisor regarding any type of home loan. Being aware of tax deductions and liabilities can save you a huge headache and possibly thousands of dollars!

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