The deadline to file your 2022 taxes is just a few weeks away (April 18, to be exact). Many people can get their taxes done quickly by using one, other people don’t even know where to start. Trying to determine what it is can quickly become confusing Are you and what? You are eligible and not.
Homeowners can usually count on a larger deduction if they are still paying significant interest on their home loan. But if they’ve lived in the home for an extended period of time — and the interest on the loan has dropped — they won’t be able to deduct as much when it’s time to file their return.
Fortunately, there is another way homeowners can take advantage of tax deductions. If the home owner aor a They may be able to deduct the interest paid on their return during the tax year in question. This can only happen in IRS-approved circumstances, but it’s still worth pursuing, especially if you’ve held a substantial amount of equity during the year in question.
Learn more about how a home equity loan can qualify as a tax deduction and why it’s such a credit.From a trusted expert. Start exploring your home equity loan options here and check your eligibility.
Is a home equity loan tax deductible?
In short: A home equity loan is not tax deductible, but the interest the homeowner pays on it can be if they use it for an IRS-approved reason.
“Home equity loan interest and lines of credit are deductible only when the borrowed funds are used to purchase, construct or substantially improve the taxpayer’s home that secures the loan,” the IRS explains online. “The loan must be secured by the taxpayer’s principal home or second home (eligible residence) and meet other requirements.
“Generally, you can deduct home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 8a,” the IRS says. “However, any interest shown in Box 1 of Form 1098 from a home equity loan, or a line of credit or credit card loan secured by property, is not deductible if the proceeds are not used to purchase, construct, or substantially improve a qualified home. “
Not sure if you qualify?Can help sort through your return to maximize your deductions.
You can now explore your local home equity loan options online.
Home equity loans are just one (important) item you can deduct when filing your taxes. If you use a HELOC, you may qualify for a deduction there as well, assuming it meets the same requirements as your home equity loan. And the mortgage interest deduction is still substantial for millions of homeowners.
“You can deduct home mortgage interest on the first $750,000 of debt ($375,000 if married filing separately),” the IRS says. “However, the higher limitation ($1 million ($500,000 if married filing separately)) applies if you deduct mortgage interest on debt incurred before December 16, 2017.”
And don’t forget, even though tax deductions are favorable for home equity loans and HELOCs, you’re still using your home as collateral for this type of credit. So make sure you thoroughly explore all your credit options before signing on the dotted line. That said, both home equity loans and HELOCs are commonly offeredTay rates compared to many other popular forms of credit — combined with interest deductions — can make these credit options your best bet.
Have more questions about home equity loans? Not sure if they are right for you? Learn more about this unique credit option by checking out these articles:
MoneyWatch: Managing Your Money
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