- Reasons to Tap Your Equity
- Understanding Home Equity Loans
- The Home Equity Loan Process
- Home Equity Loans and Taxes
There are some special tax rules with regard to what costs can be deducted in connection with an equity loan or credit line. Let's see what tax breaks you'll get from Uncle Sam.
Interest
If you borrow against the equity in your home to make major capital improvements to the home, the interest on up $750,000 of mortgage debt plus up to $100,000 of home equity debt is tax-deductible.
IMPORTANT NOTE: If you are married and filing separately, the mortgage deduction limit is reduced to $375,000.
Points
There are three different ways that the IRS treats home equity points.
- If you are borrowing to make capital improvements to your home, the points are fully deductible in the year you borrow. Now, this gets tricky if only a portion of the loan is used for the improvements. If this is the case, only the portion of the points related to the improvements is deductible in the year you borrow. The remaining points are required to be deducted equally each year over the term of the loan or the line of credit.
- If you are borrowing for any other reason, the points must be deducted equally each year over the term of the loan or the line of credit.
- If you pay off your loan early, the points become deductible immediately.
This information should serve as a guide for you—to give you an idea of what's tax-deductible and what's not. You should call your tax professional to clarify anything you don't understand and to verify that the information is still valid under current law. Keep in mind that tax laws are always subject to change, and that the information provided here could change at any time.
Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Franklin Mint Federal Credit Union and Mint Wealth Advisors are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Mint Wealth Advisors, and may also be employees of Franklin Mint Federal Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, Franklin Mint Federal Credit Union or Mint Wealth Advisors. Securities and insurance offered through LPL or its affiliates are:
Not NCUA Insuredor Any Other Government Agency | No Credit Union Guarantee | Not Credit Union Deposits | May Lose Value |
The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: NJ, PA, NY, DE, AZ, MI, FL, MD, TX, VA, GA, NC.
Financial Learning Center content created by TrueBridge, Inc. The information provided is based upon sources and data believed to be accurate and reliable. The content contained herein is intended for information and illustrative purposes only, should not in any way be construed as a personal recommendation, and should be used in conjunction with individual professional advice.