Some Loans Can Save You Money On Your Income Taxes
It turns out that not all loan programs are the same when it comes times to look at your tax situation. Did you know that when you borrow money you could also be reducing the amount of income taxes you have to pay at the end of the year? Many loans may give you a tax credit which shrinks the yearly tax you owe and other types of loans may give you a tax deduction which reduces your gross taxable income. Almost everybody wants to borrow money from time to time and it makes sense to do your homework before diving into a big loan commitment. Here’s a brief guide to what loans may qualify you for a tax credit, though obviously individual cases will vary.
Student Loans: Did you know that some loans you take out for school could give you a tax advantage? You can, in some cases, deduct the interest you paid on the loan from your federal taxes. Not all school loans are eligible for this, but it’s a good way to reduce the taxes you pay, especially if you’re a struggling student with a limited income. The interest you pay on many school loans can only be deducted if you make under a certain amount of money, based on how you file your taxes.
Home Mortgages: Out of all the loans that have tax benefits associated with them, home mortgages are probably the most talked about. Most house payment plans are designed so that you can deduct the amount of interest you pay on the loan every year. Since most house mortgages are set up to be paid over 30 years, that means that purchasing a house can give you 30 years of possible tax deductions. For most 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 federal taxes each year.
Home Equity Loans (HELOC): A home equity loan used to improve your home could eventually raise the value of your dwelling and give you even more equity in the long run. If your house is more valuable now than when you bought it then you might be able to take out a home equity loan and deduct the interest you pay on that loan. There are some restrictions about how much of your loan’s interest actually qualifies for a tax benefit. You can use a home equity loan for a variety of things, you may be able to get additional tax credits by using the money for home repairs. For many homeowners some of the cost of a home equity loan can be balanced out with home repair tax credits.
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 income, 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. Sometimes applying for 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 to look into what sort of tax credits you qualify for.
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