Are Home Equity Loans Tax Deductible?
Find out the answer to the tax question you've been asking--- are home equity loans tax deductible? Learn more in this helpful article.
Are Home Equity Loans Tax Deductible?
When it comes to taxes, the answer is not always cut and dry. Are home equity loans tax deductible? It depends on the circumstances of the loan, how the proceeds of the loan are used, and whether the loan meets certain qualification requirements.
Qualifying for Deductible Interest
In order for a home equity loan to qualify for deductible interest, the loan must be used to buy, build, or improve a home. These loans also must meet certain Internal Revenue Service requirements. This includes having a total mortgage balance of up to $750,000 for loans issued before 2018. If your loan was issued after 2018, the mortgage balance is limited to $750,000. Additionally, the loan must be " secured" by your primary residence or a second home.
Using Home Equity Loan Proceeds
It's important to understand how you are using the proceeds of the loan when determining if your home equity loan is tax deductible or not. If you use the loan proceeds to improve your home, the interest is generally tax deductible. But if you use the loan for other purposes, such as paying off debt or investing, the interest is not deductible. Additionally, if you use part of the loan to pay off non-housing related debt, the portion of the loan used for that purpose is not tax deductible.
Additional Factors
The loan must have been used to buy, build, or improve your home in order for the interest to be tax deductible. Additionally, any loan proceeds used for non-housing related expenses are not tax deductible. Be sure to keep track of how the loan proceeds were used and any other applicable information that may affect your ability to deduct the interest.
Conclusion
It is possible to deduct the interest paid on a home equity loan, but it depends on various factors, such as how the proceeds were used, the amount of the loan, and whether the loan is secured by your primary residence or a second home. Be sure to keep track of all applicable information and consult with a tax professional for more detailed advice.