Using a Home Equity Loan or Second Mortgage to Reduce Your Income Taxes
Do you or someone you know have equity in a home and are currently paying interest on other debts such as automobile loans, credit cards or student loans? If so, a Home Equity Loan, Home Equity Line of Credit (HELOC) or a Second Mortgage may be a way to reduce your income taxes.
Did you know you can borrow up to $1.1 million ($550,000 for single or married filing separately filers) on a qualified residence and deduct this interest paid against taxable income? This is a fact! A taxpayer can deduct interest paid on up to $1 million of qualified residence indebtedness plus up to $100,000 of home equity indebtedness against taxable income.
Whether you’re interested in a Home Equity Loan, Home Equity Line of Credit (HELOC) or a Second Mortgage, these are great tools that can be used to turn personal interest expense (that is not tax deductible), into deductible mortgage interest. The only restriction on home equity indebtedness is the debt must be secured by a qualified residence. The home equity indebtedness deduction represents an exception that personal interest is not deductible. This exception is what creates a way to potentially reduce your income taxes and possibly consolidate debt at a lower interest rate.
Please feel free to contact your Anders tax advisor is you have further questions.