One of the main concerns people have about home equity loans has to do with how they are affected by tax policy. Specifically, what are the rules press this link now when it comes taxation and taking a deduction for the home equity loan interest that you pay?
However, there are some significant differences worth noting.
Not taxable as income
There are two other tax matters to get out of the way before we talk about deductions, though. First, the funds you receive through a home equity loan or home equity line of credit (HELOC) are not taxable as income – it’s borrowed money, not an increase your earnings.
Second, in some areas you may have to pay a mortgage recording tax when you take out a home equity loan. This may be assessed by your state, county or municipality and are based on the loan amount. So the more you borrow, the higher the tax. They’re fairly uncommon though, and found in only a few states.
Guidelines for home equity loan tax deductions
The standard rule is that a couple can deduct the interest paid on up to $100,000 in home equity loan debt and a single filer can deduct the interest on up to $50,000. So if a couple has a $100,000 home equity loan and paid $7,000 in interest on it over the course of the year, they can take a $7,000 deduction on their joint tax return. Continue reading “Generally speaking, interest on home equity loans is tax-deductible, as is the interest paid on the primary mortgage you used to buy your home”