Topic: TAXES; HOME EQUITYWho is affected: HOMEOWNERSHIPDEGREE OF DIFFICULTY: EASYWhat you'll need: 1040 TAX FORM AND SCHEDULE A, STATEMENT OF HOME EQUITY INTEREST FROM LENDERWhat you need to knowIf you've taken out a home equity loan or line of credit, don't forget you can also deduct the loan or HELOC interest from your tax return.To do so, you'll need to use the IRS 1040's Schedule A for itemized deductions.How do you know if your loan is eligible for deduction? Generally, equity debts of $100,000 or less are entirely deductible. But if your outstanding mortgage combined with your equity loan exceeds your home's value, the IRS will rein in the amount of deductible debt interest.An example:Your mortgage balance: $125,000Your home's value: $140,000Your loan-to-value equity line: 125 percent, or $50,000($140,000 x 125 percent = $175,000 – $125,000 = $50,000)Your deduction allowance: interest on $15,000 of the loanWhy? Because $140,000 (home value) – $125,000 (mortgage loan) = $15,000Nondeductible debt: $50,000 – $15,000 = $35,000For more information, check out the Bankrate feature "Taxes and your home equity loan." Step-by-stepFigure out exactly how much you'll save with our tax deductible loan calculator.Monthly payment: Loan amount: Term in months: GoRelated linksTools & resourcesTipsBreak it down: tax relief for homeownersAdding homeownership to your taxesHome sweet homeowner tax breaksTwo big homeownership expenses to deductTaxes and your HELOCHome equity loans: the good and the bad Home equity loan vs. HELOCHome equity: to borrow or not to borrow?1040 tax calculatorMortgage loan tax deduction calculatorTaxes on home equityTax breaks that help you get aheadAre you ready? Tax preparation checklistTax calculatorsPick up a copy of the regular 1040 and the Schedule A.Interest on equity debts of less than $100,000 usually is tax-deductible.If you take out more than $100,000 but use it on home improvements, 100 percent of the debt interest should be tax-deductible. advertisementRelated Links:Home equity loan or line of credit?Tips on shopping for a home equity loanNational home equity loan rates for Oct. 14, 2010Related Articles:10 cheap home value fixesHome equity lines Home equity rates
To do so, you'll need to use the IRS 1040's Schedule A for itemized deductions.
How do you know if your loan is eligible for deduction? Generally, equity debts of $100,000 or less are entirely deductible. But if your outstanding mortgage combined with your equity loan exceeds your home's value, the IRS will rein in the amount of deductible debt interest.
An example:
Your mortgage balance: $125,000
Your home's value: $140,000
Your loan-to-value equity line: 125 percent, or $50,000
($140,000 x 125 percent = $175,000 – $125,000 = $50,000)
Your deduction allowance: interest on $15,000 of the loan
Why? Because $140,000 (home value) – $125,000 (mortgage loan) = $15,000
Nondeductible debt: $50,000 – $15,000 = $35,000
For more information, check out the Bankrate feature "Taxes and your home equity loan."
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