Dear Tax Talk,
Is the interest on a home equity line of credit tax-deductible? If it is, do I have to itemize, or can I take the standard deduction?
Deducting interest on a home equity line of credit depends on several factors, so make sure you know the rules before taking out that loan.
If allowable, the deduction would be claimed on Schedule A, Itemized Deductions. After you complete Schedule A, you then determine whether you have a higher deduction by itemizing or if you are better off claiming your allowable standard deduction.
Loans that are secured by your main home or a second home qualify for the home mortgage interest deduction. Mortgages include a mortgage to buy your home, a second mortgage, a line of credit or a home equity loan.
Sounds simple so far, right? So it seems to make sense that because interest on auto debt, credit card debt and other personal debt is not deductible that you would take out an equity line on your home and pay off those debts and now get the deduction on your tax return.
Well, the IRS has some limitations on the amount you can deduct, and it depends on several factors such as the date of the mortgage, the amount of the mortgage and how you use the proceeds.
The IRS has three categories of mortgages that qualify for a tax deduction:
The good news is that if your mortgage interest meets these criteria, then it is deductible. If it does not, then there is a work sheet in Part II of IRS Publication 936 that can be used to calculate your deduction.
Thanks for the great question and all the best to you.
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