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.

Tax advantages

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.

Potential risks

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:

Related Topics

Related Resources

Can I File Taxes With My Maiden Name?

Wondering if you can file taxes with your maiden name? Learn how to file taxes jointly with different last names from the experts at H&R Block.

State of Michigan Taxes

Wondering if you need to pay state of Michigan taxes? Read here to learn who pays and how to pay, with guidance from the tax pros at H&R Block.

Texas Property Tax

Do you own real property in Texas? Read here to learn more about Texas state real property tax including how to pay and when it’s due.

File A Joint Or Separate Return The Year Married

Learn whether to file a joint or a separate return the year you were married with advice from the tax experts at H&R Block.