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Home Equity Loan Tax Deductions - Deducting Home Equity Interest

July 22, 2008 on 12:49 pm | In Uncategorized |

Home equity interest is tax deductible under certain circumstances.
Interest is an itemized deduction if you paid the interest, where legally
responsible for the loan, and secured the loan with your home. If you
don’t meet these conditions, you can still deduct the interest, just
under another category.

Basic Requirements To Deduct Mortgage Interest

The IRS has three basic requirements that you must meet in order to
deduct mortgage interest. First, you have to be legally responsible for
the loan. You can’t deduct interest you pay for someone else’s loan.

The home equity loan also has to be a secured debt for a qualified
home. It either has to be your main home or second property. It cannot be
rented out or used for business purposes. If you do use a room as a
business office, that part of the house can be written off as a business
expense.

The final requirement is that you file a 1040 with itemized deductions.

Fully Deductible Interest Has Caps

In most cases, you will be able to fully deduct the interest you paid
on a qualifying loan. The loan has to be for the fair market value of
the property or less. Loans originating prior to October 13, 1987 are
automatically grandfathered in.

Loans after 1987 have caps on qualifying loan amounts. If the home
equity loan was taken out to purchase, construct, or improve a home, then
it qualifies for the entire deduction up to $1 million when filing
jointly. Home equity loans used for other purposes qualify for deductions up
to $100,000.

Special Cases For Interest Deductions

The IRS has also made provisions for military personal and ministers.
If you receive a non-taxed housing allowance, you can still deduct your
mortgage interest.

You can also deduct early payment fees for selling or refinancing your
home. In some cases, late payment fees can also be itemized.

Tax Laws Change

Before taking any actual tax deduction, double check with IRS
regulations to be sure you are in compliance. Each year tax laws change, so
check either with the IRS publications or an accountant. They will be able
to give you the most up to date information and possibly point out
additional deductions.

View our recommended lenders for a home equity loan online.

Also, check out our recommended lenders for home refinance companies online, or view our recommended bad credit lenders online.