Content Overview
- Summary
- What Are Home Equity Loans and Lines of Credit?
- How Do I Qualify For A Home Equity Loan Or Line Of Credit?
- How To Avoid Fraud When Seeking A Home Equity Loan Or Line Of Credit
- Taxes And Home Equity Loans
- Is A Home Equity Loan Right For Me?
- Tips To Consider If You Do Take A Home-Equity Loan Or Credit Line
- What To Do If You Can't Afford The Payments On A Home Equity Loan
Home Equity Loans and Lines of Credit 101 (HELOC)
Taxes And Home Equity Loans
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There is a great advantage of using a home-equity loan to pay off personal debt: you replace higher interest payments that are not tax-deductible with lower ones that are tax-deductible.
The interest on home equity loans of up to $100,000 or the equity in your house, whichever is lower, is tax-deductible. For example, if you take out a home equity loan of $65,000 and have $50,000 of equity in your home, the interest on only $50,000 of the home will be deductible. If you take out a home equity loan of $125,000 on $125,000 equity, only the interest on $100,000 of the loan will be deductible. If you use the money for home improvements, the limit rises to $1 million in total mortgage debt.
The cash that you receive from a home equity loan or line of credit is not taxable because it is considered a loan.
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