Tax Tip #7: Home Equity Loans

This is the last tax tip in this series of posts. Thank you for reading. If you have more questions, we urge you to seek the counsel of an experienced tax professional.

#7:  Home Equity Loans

Unfortunately in this economy, people sometimes need to take out a home equity loan to pay for things other than their home that they couldn't normally afford, such as tuition. Can you get a tax break for that? Perhaps. It depends on the situation. Part or all of the interest that you pay on the loan could be deductible for up to $100,000 ($50,000 if you are married filing separately).

The amount that you can deduct interest on is the difference between what your home is worth and what you owe on your mortgage. (Example: if your home is worth $250,000, and your mortgage is worth $200,000, you are able to deduct interest on $50,000. If you take out a loan larger than that, such as $80,000, you cannot deduct interest on the extra $30,000.)

If you are faced with the alternative minimum tax (AMT), you won't be able to deduct any of the interest on a home equity loan. This applies if you use the money for tuition or something else not related to your property.

If you did use the money to renovate and improve your property, you will be able to deduct all of the interest whether you are faced with the AMT or not. (But still only the $50,000, not the full $80,000, as per the example above.)

Click here to view Tax Tip #6.

Once again, if you have any questions about your own specific mortgage situation, call us at 877-828-8851. We can help!

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Tax Tip #6 - Mortgage Discount Points

#6 - Mortgage Discount Points

Sometimes people choose to pay a point toward their mortgage upfront at closing so they can get a lower interest rate. Each point is the equivalent of 1 percentage of your loan. This can save you money in the long run, even if it doesn't go toward actually paying off the loan. Many people do this. If you opted to go this route too, you may able to deduct them if you meet all of the following criteria:

• The loan was used to buy, improve or build the home
• The loan is secured by your primary residence
• Paying points is normal where you live
• The points are calculated as a percentage of the loan principal
• The points are clearly outlined on the buyer's settlement statement
• The amount of cash you put into buying your home is as least equal to the amount you were charged for the points you paid on the loan

Also, if you paid points to refinance your home, you are able to deduct a portion of what you paid each year, spread out over the life of the loan. Ask a tax professional for more specific details about this if you need help calculating it for your own specific situation. To learn more about mortgage discount points or any other mortgage-related topics, feel free to call us at 877-828-8851.

Click here to view Tax Tip #5.

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