Just about everybody needs to borrow cash sometimes and it’s smart to do your research before diving into a big loan. Did you know that when you borrow money you could also be reducing the amount of taxes you have to pay to the government? It turns out that not all money borrowing programs are the same when it comes times to look at your tax situation. Many loans can give you a tax credit which shrinks the tax you owe and other kinds of loans may give you a tax deduction which reduces your taxable income. Here’s a simple guide to which loans may qualify you for a tax credit, though obviously individual cases will vary.
Student Loans: You can, in many cases, deduct the interest you paid on the loan from your federal taxes. Not all education loans are eligible for this, but it’s a good way to decrease the taxes you pay, especially if you’re a cash-strapped student with a limited income. The interest you pay on most education loans can only be deducted if you make under a certain amount of money, based on your individual filing status.
Home Mortgages: Most house payment plans are set up so that you can deduct the amount of interest you pay on the loan every year. For most people their home is the biggest purchase they ever make, and paying a home loan can actually be a good way to reduce the amount of money you owe on your federal taxes each year. Since most home mortgages are set up to be paid over 30 years, that means that purchasing a home can give you 30 years of potential tax deductions.
Home Equity Loans: If your dwelling is more valuable now than when you bought it then you might be able to take out a home equity loan (sometimes called a HELOC) and deduct the interest you pay on that loan. There are some restrictions about how much of your loan’s interest actually qualifies for a tax deduction. You can use a home equity loan for a variety of things, you may be able to get additional tax credits by using the money for home upgrades. In some case you can even earn tax credits for using the money to improve your home’s energy efficiency. A home equity loan used to improve your dwelling could eventually raise the value of your house and give you even more equity over time. For many homeowners part of the cost of a HELOC can be balanced out with home improvement tax deductions.
There are, of course, a lot of variables between these loans. Not everyone will be eligible for all the different tax benefits that these loans may offer. Sometimes your living situation, the amount of money you want to borrow and the purpose of the loan will limit the amount of money you can deduct from your taxes in any given year. Before you take out any of these loans you may want to speak with your tax professional to make sure the tax benefits pertain to your individual situation. Sometimes taking out the right kind of loan can definitely save you thousands of dollars on your income taxes, so it’s worth spending a little bit of time to look into what sort of tax benefits you qualify for.
Need to learn more about the ins and outs of home loans? Check out our site to learn more about modifying a mortgage, upside-downmortgages and the home buyer tax credit extension.
categories: income taxes,home loans,student loans,mortgages,saving money,money,home,loans,college,home ownership
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