Topic: TAXES; HOME EQUITY
Who is affected: HOMEOWNERSHIP
DEGREE OF DIFFICULTY: EASY
What you'll need: 1040 TAX FORM AND SCHEDULE A, STATEMENT OF HOME EQUITY INTEREST FROM LENDER
What 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.
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."
Figure out exactly how much you'll save with our tax deductible loan calculator.