Posted by Thomas Miller on March 21st, 2012
Surprisingly, not all loan programs are the same when it comes times to pay your taxes. Were you aware that when you take out a loan you could also be reducing the amount of income taxes you have to pay at the end of the year? Many loans can give you a tax credit which lowers the income tax you owe and other types of loans may give you a tax deduction which lowers your gross taxable income. Almost everyone needs to borrow money from time to time and it makes sense to do your research before diving into a big situation involving money. Here?s a brief guide to what loans may give you for a tax deduction, though obviously everyone?s tax situation will vary.
School Loans: Did you know that many loans you take out for education could give you a tax advantage? You can, in some 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 reduce the taxes you pay, especially if you?re a struggling student with a limited income. The interest you pay on most student loans can only be deducted if you make under a certain amount of money, based on your individual filing status.
House Mortgages: Most home loans are designed so that you can deduct the amount of interest you pay on the loan every year. For most people their home is the largest purchase they ever make, and paying a home loan can actually be a good way to reduce the amount of cash you owe on your income taxes each year. Since most house mortgages are designed to be paid over thirty years, that means that purchasing a house can give you 30 years of possible tax deductions.
Home Equity Loans (HELOC): A home equity loan used to improve your home could eventually increase the value of your house and give you even more equity in the long run. If your house is more valuable now than when you bought it then you might be able to take out a home equity loan and deduct the interest you pay on that borrowed money. There are some restrictions about how much of your loan?s interest actually qualifies for a tax benefit. 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 repairs. For many homeowners some of the cost of a HELOC can be offset with home repair tax credits.
Sometimes applying for the right kind of loan can literally save you thousands of dollars on your income taxes, so it?s worth spending a little bit of time and energy to look into what sort of tax credits you qualify for. There are, of course, a lot of differences between these loans. Not everyone will be eligible for all the different tax credits that these loans may offer. Sometimes your income, the amount of money you want to borrow and the reason of the loan will limit the amount of money you can deduct from your taxes in any given year. Before you apply for any of these loans you may want to speak with your tax professional to make sure the tax benefits pertain to your individual situation.
Need to learn more about the ins and outs of home loans? Visit our site to learn more about how to modify a home loan, underwater mortgages and the home buyer tax credit extension.Posted in Money Tags: college, home, Home Improvement, home loans, home ownership, income taxes, loans, money, mortgages, saving money, student loans Both comments and pings are currently closed.