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.

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