Subscribe Feed (RSS)It turns out that not all money borrowing programs are the same when it comes times to pay your taxes. Did you know that when you borrow money you could also be reducing the amount of taxes you have to pay at the end of the year? Many loans may give you a tax credit which lowers the tax you owe and other kinds of loans may give you a tax deduction which lowers your gross income. Just about everybody needs to borrow money from time to time and it’s smart to do your homework before diving into a big situation involving money. Here’s a brief guide to what loans may qualify you for a tax credit, though obviously everyone’s tax situation will be different.
School Loans: Did you know that many loans you take out for school 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 school loans are eligible for this, but it’s a good way to decrease the taxes you pay, especially if you’re a struggling student with a limited income. The interest you pay on some student loans can only be deducted if you make under a certain amount of money, based on your individual filing status.
House Mortgages: Out of all the loans that have tax benefits associated with them, home mortgages are probably the most well-known. Most home payment plans are set up so that you can deduct the amount of interest you pay on the loan every year. Since most home loans are designed to be paid over 30 years, that means that purchasing a home can give you 30 years of potential tax deductions. 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.
Home Equity Loans: 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. 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 borrowed money. A home equity loan used to improve your home could eventually raise the value of your house and give you even more equity in the long run. There are some restrictions about how much of your loan’s interest actually qualifies for a tax deduction. In some case you can even get tax savings for using the money to upgrade your home’s structure like replacing windows with more energy efficient models. For some people some of the cost of a HELOC can be balanced out with home remodeling tax credits.
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. There are, of course, a lot of variables between these loans. Not everyone will be eligible for all the different tax deductions 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. Sometimes taking out the right kind of loan can literally save you thousands of dollars on your income taxes, so it’s worth investing a little bit of time to look into what sort of tax benefits you are eligible for.
Want to learn more about the ins and outs of home loans? Visit our site to learn more about how to modify a mortgage, underwater mortgages and the home buyer tax credit extension.
Tags: college, finance, home, Home Loans, home ownership, income taxes, Loans, money, mortgages, saving money, Student Loans
