Mortgage Interest Tax Deduction

Home equity loans represent a good way to take money out of your home. One of their advantages is the ability to deduct the interest you pay from your taxes. However, it is worth noting that there are certain limits on this tax deduction. If you have any doubts regarding the functioning of tax deduction and your home equity loan, keep on reading this article.

Mortgage Interest Deductibility

No need to say that one of the biggest benefits of deducting interest on mortgage is that you save money that can be used for other purposes. Such a benefit can turn out to be extremely useful if you use your home equity loan for debt consolidation. As a result the interest you need to pay is turned from just an expense into tax deductible. If you manage to take the best of this possibility you will be able to extract a lot of benefit.

However, before you take advantage of the mortgage interest tax deduction you must:

• First, make sure that your property is a "qualified home". In other words, whether your home is a house, a condominium, or a trailer, it should have sleeping, cooking and toilet facilities.
• Second, if you have multiple second homes, claim a deduction from only one second home. Additionally, at least 14 days a year should be spent in your second home to qualify.

Since falling interest rates have made refinancing a popular topic lately, it is also good to note that you can refinance your mortgage and still claim tax deductions if you do the refinancing without taking on additional debt.

Mortgage Interest Tax Deduction Pitfalls

Of course, deducting interest has its limitations.

The corresponding interest that is paid on the first $100,000 of the home equity loan is deducted from taxes. When you exceed this amount, the interest can be deducted depending on the use of the loan.

For example, a deduction can be made on an amount no more than $1 million or the equivalent value of the home when the equity loan has been applied for the improvement of the first or second home (or the purchase of the latter).

Finally, as you probably know, tax laws are characterized by high flexibility and dynamics and their requirements undergo frequent changes. Therefore, it is advisable that you make the corresponding legal checks when you decide to take a mortgage interest deduction.

Bookmark this page (CTRL+D) :