Buying Properties

Almost everyone needs to borrow money sometimes and it makes sense to do your homework before diving into a big loan commitment. Did you know that when you take out a loan you could actually be shrinking the amount of taxes you have to pay to the government? It turns out that not all loans are the same when it comes times to pay your taxes. Some loans can give you a tax credit which lowers the yearly tax you owe and other kinds of loans can give you a tax deduction which lowers your gross income. Here’s a brief guide to which loans may qualify you for a tax credit, though obviously individual cases will be different.

School Loans: You can, in some cases, deduct the interest you paid on the loan from your income taxes. Not all student loans are eligible for this, but it’s a good way to decrease the taxes you pay, especially if you’re a struggling student with a limited income. The interest you pay on some education loans can only be deducted if you make under a certain amount of money, based on your individual filing status.

House Mortgages: For many taxpayers their home is the largest purchase they ever make, and paying a home loan can actually be a good way to reduce the amount of cash you owe on your income taxes each year. Most home mortgages are set up so that you can deduct the amount of interest you pay on the loan every year. Out of all the loans that have tax deductions associated with them, house mortgages are probably the most well-known. Since most house loans are designed to be paid over 30 years, that means that purchasing a house can give you 30 years of potential tax deductions.

Home Equity Loans: If your home is more valuable now than when you bought it then you might be able to take out a home equity loan (sometimes called a HELOC) and deduct the interest you pay on that borrowed money. There are some restrictions about how much of your loan’s interest actually qualifies for a tax deduction. You can use a home equity loan for a number of things, you may be able to get additional tax credits by using the money for home improvements. In some case you can even get tax savings for using the money to upgrade your house’s energy efficiency. A home equity loan used to improve your house could eventually raise the value of your dwelling and give you even more equity over time. For some homeowners some of the cost of a home equity loan can be balanced out with home improvement tax credits.

Sometimes taking out the right kind of loan can literally save you thousands of dollars on your income taxes, so it’s worth spending a little bit of time and energy to look into what sort of tax credits you qualify for. There are, of course, a lot of differences between these loans. Not everyone will be eligible for all the different tax credits that these loans may offer. Sometimes your living situation, the amount of money you want to borrow and the purpose of the loan will limit the amount of money you can deduct from your taxes in any given year. Before you apply for any of these loans you may want to talk with your tax professional to make sure the tax benefits apply to your individual situation.

Want to learn more about the ins and outs of home loans? Visit our site to learn more about modifying a mortgage, underwater mortgages and the home buyer tax credit extension.