| Home Equity Loan Tax advantages |
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marketexec
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| Home Equity Loan Tax advantages |
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Tax regulations allow many people to deduct all or part of the interest they pay on these loans, but there are exceptions. Because of these potential pitfalls, experts say people should educate themselves before borrowing against their homes.
If you have the option to take a home equity loan vs. going out and borrowing money at a higher rate which is not deductible and buying a car, then of course the home equity loan is going to be better. I can tell you that I found all my home equity loan at www . moneyinfoline . com
and I was satisfied with the easiness of the process.
At the same time, "People would get home equity loans -- you see the ads with the football star saying, 'Get a home equity loan and pay off your credit card bills' ... and then continue to charge on their credit cards.
"It's not something to be done lightly."
Making a move
Thanks to changes in the tax laws dating back to 1986, many people can benefit by moving debt with non-deductible interest -- such as auto and motorcycle loans and credit cards -- over to a tax-deductible loan or line of credit secured by a home. The tax advantage has the effect of lowering the already low equity loan rate even further, making credit cards look like a pretty silly way to manage debt.
For home equity, you can deduct the interest on a loan up to $100,000 regardless of where you use the money. Let's say your children are going to college and you need extra cash. You can take a home equity loan of up to $100,000 and deduct the interest payments on the Schedule A.
The limit applies regardless of whether a borrower has one $100,000 equity loan against a primary residence, or a combination of loans worth that much but secured against two different homes.
Tax restrictions
Tighter tax restrictions apply to borrowers who take out home equity loans that, along with a first mortgage, raise the debt to a level above the value of the property.
In such circumstances, borrowers can deduct the interest on only part of home equity debt. The Internal Revenue Service determines the eligible debt by subtracting the amount borrowed to acquire the property -- the first mortgage -- from the fair market value of the home.
A homeowner with a $100,000 property and an $80,000 first mortgage, for example, might be able to get an equity loan for $45,000 under a 125 percent loan-to-value program. But the house is worth only $20,000 more than the original debt, so only the interest on the first $20,000 of the home equity debt is deductible.
Improved circumstances
Langdon notes that equity loans used for home improvement qualify for different treatment, however. They resemble first mortgages for tax purposes. And since people can deduct interest on $1 million worth of first mortgage debt, they have greater leeway than those who use their equity loans for things besides a new deck or garage.
It's called 'acquisition indebtedness' -- a loan you get to build your house, a loan to buy your house, or any loan you take out to substantially improve your home.
For instance, someone with a $400,000 first mortgage who added a bedroom wing for $200,000 could deduct all the interest paid. A similar borrower who used the $200,000 loan for college expenses, on the other hand, only could deduct the interest paid on the first $100,000 of the balance.
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Sat Jan 29, 2005 5:44 am |
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joseanes
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Just be carefull.
Alternative Minimum Tax will hurt us all if they don't fix it.
And it doesn't counts the Home Equity Line Interest.
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Tue Sep 13, 2005 3:12 pm |
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ushomeloans
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The reason why the tax breaks exist on the home is because the government does suggestive tax breaks. They want ppl to own a home because it helps the economy (buy more crap).
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Mon Nov 07, 2005 10:17 pm |
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Rolo
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quote:
Originally posted by LottomagicZ4941
I think the people in moble homes and apartments should get the tax breaks.
Don't they need the money more?
It's tax, not welfare.
quote:
Originally posted by LottomagicZ4941
Don't they rape our environment less?
First, I wanna say, "Go hug a tree."
Fixed-structure wood houses last hundreds of years; mobile homes do not and are also made of wood.
Using a forest for its natural resources and replanting new forests is not "rape". Also, when done properly, it is HEALTHY for the environment. Environmentalists are pretty damned arrogant to think that piddley little man can so easily destroy the earth.
"Expect me when you see me."
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Tue Nov 08, 2005 12:31 am |
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auggyf
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Speaking of AMT deductibility:
You are allowed to deduct a home-equity loan (for AMT) ONLY if the money is going towards buying, building, or improving your residence.
PS: "A qualified dwelling" is any house, apartment, condominium, or mobile home not used on a transient basis.
So, if Congress does nothing, home equity loans for non-house related things will slowly be phased out as more people get affected by AMT.
http://www.irs.gov/pub/irs-pdf/i6251.pdf
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Tue Nov 08, 2005 3:42 pm |
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StudentR
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Wanna small tax go to Russia 
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Wed Nov 09, 2005 12:17 pm |
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