Home Equity Loan Tax Deduction
You can borrow money against the value of your home with a home-equity loan or a home-equity line of credit. You can secure both with a second mortgage. Both provide access of up to 100% or more of the equity in your home.
A home-equity loan is usually distributed in one lump sum. Its rate is often fixed for the entire term of the loan.
You can access a home-equity line of credit at your discretion. Unlike a home-equity loan, the rate for a home-equity line of credit changes based on an index. It often converts to a fixed rate after a set period of time.
Both provide access of up to 100% or more of the equity in your home.
If you itemize, you might be able to fully deduct interest payments on either type of loan. This distinguishes these loans from other forms of consumer credit. Since the collateral is your home, interest rates are lower than other consumer loans or credit cards.
However, since your house is the collateral for these loans, failure to repay can cost you your home. Make sure you think carefully about what you plan to buy with your loan or credit line. A home-equity loan with a lower, set amount might be better than a flexible line of credit.
To learn more, see these tax tips:
- Second Home
- Self-Employment Deductions
Can you claim a tax deduction if you use a cell phone for business purposes? Learn more from the tax experts at H&R Block.
What to do if you accidentally claimed the wrong allowance amount on your W-4. Learn more from the tax experts at H&R Block.
Learn more about which items on the HUD-1 form you can claim as tax deductions with advice from the tax experts at H&R Block.
Why didn't your employer take any federal withholding taxes out of your paycheck? Learn the answer from the tax experts at H&R Block.