Best Of Is Interest On Home Equity Loan Tax Deductible Ideas

Is Home Equity Loan Interest Still Deductible? Alloy Silverstein from alloysilverstein.com

Is Interest on Home Equity Loan Tax Deductible?

Introduction

If you are a homeowner, you may have heard about home equity loans. They are a popular form of borrowing money that allows you to use your home’s equity as collateral. Home equity loans are often used to finance home improvements, pay off high-interest debt, or fund other large expenses. But, the big question is, is the interest on home equity loans tax-deductible? In this article, we’ll take a closer look at the tax benefits of home equity loans.

Understanding Home Equity Loans

Before we dive into the tax implications of home equity loans, let’s first understand what they are. A home equity loan is a type of loan that allows you to borrow money using your home’s equity as collateral. Home equity is the difference between your home’s current market value and the outstanding balance on your mortgage. For example, if your home is worth $500,000 and you owe $300,000 on your mortgage, you have $200,000 in equity.

Types of Home Equity Loans

There are two types of home equity loans: a home equity loan and a home equity line of credit (HELOC). A home equity loan is a lump sum of money that you receive upfront and repay over time with fixed payments. With a HELOC, you have access to a line of credit that you can draw from as needed, and you only pay interest on the amount you borrow.

Interest on Home Equity Loans

One of the biggest advantages of home equity loans is that the interest may be tax-deductible. However, the tax rules on home equity loans have changed in recent years. Prior to 2018, you could deduct the interest on up to $100,000 of home equity debt, regardless of how you used the money. But, with the passage of the Tax Cuts and Jobs Act in 2017, the rules changed.

Current Tax Rules

Under the current tax rules, you can only deduct the interest on a home equity loan if you use the money to buy, build, or substantially improve your home. If you use the money for other purposes, such as to pay off credit card debt or take a vacation, the interest is no longer deductible.

Limitations on Deductions

There are also limitations on the amount of interest you can deduct. The total amount of mortgage debt that you can deduct the interest on is limited to $750,000. This includes your original mortgage as well as any additional home equity debt that you have.

Exceptions to the Rule

There are some exceptions to the new tax rules. If you took out a home equity loan prior to December 15, 2017, you may still be able to deduct the interest on the loan, regardless of how you used the money. Also, if you are using the money from a home equity loan to substantially improve your home, you may still be able to deduct the interest, even if the loan was taken out after December 15, 2017.

Conclusion

In conclusion, the interest on a home equity loan may be tax-deductible, but only if you use the money to buy, build, or substantially improve your home. If you use the money for other purposes, the interest is no longer deductible. It’s important to keep track of your home equity debt and make sure that you are following the current tax rules. If you have any questions or concerns about the tax implications of a home equity loan, it’s always best to consult with a tax professional.

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