These Loans May Come With Large Tax Deductions

0

Just about everybody wants to borrow cash from time to time and it makes sense to do your homework before diving into a big loan commitment. Did you know that when you borrow money you could also be shrinking the amount of federal taxes you have to pay at the end of the year? Surprisingly, not all loan programs are the same when it comes times to pay your taxes. Many loans may give you a tax credit which shrinks the income tax you owe and other types of loans can give you a tax deduction which lowers your gross taxable income. Here’s a simple guide to which loans may give you for a tax credit, though obviously everyone’s tax situation will be different.

Student Loans: You can, in some cases, deduct the interest you paid on the loan from your income 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 student loans can only be deducted if you make under a certain amount of money, based on how you file your taxes.

House Mortgages: Most house mortgages are designed so that you can deduct the amount of interest you pay on the loan every year. For many taxpayers 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 loans are set up to be paid over 30 years, that means that purchasing a house can give you 30 years of possible tax benefits.

Home Equity Loans (HELOC): A home equity loan used to improve your dwelling could eventually raise the value of your dwelling and give you even more equity in the long run. If your dwelling 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 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 improvements. For some homeowners some of the cost of a HELOC can be offset with home improvement tax deductions.

Before you take out any of these loans you may want to talk with your tax professional to make sure the tax benefits apply to your individual situation. 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 age, 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. 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 and energy 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, underwater mortgages and the home buyer tax credit extension. Free reprint avaialable from: These Loans May Come With Large Tax Deductions.

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!