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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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