These Loans Can Save You Money On Your Income Taxes

By Thomas Miller

It turns out that not all money borrowing programs are equal when it comes times to look at your tax situation. Did you know that when you borrow money you could also be shrinking the amount of taxes you have to pay at the end of the year? Many loans may give you a tax credit which lowers the tax you owe and other types of loans can give you a tax deduction which reduces your taxable income. Just about everyone wants to borrow cash sometimes and it makes sense to do your homework before jumping into a big situation involving money. Here's a brief guide to what 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 federal taxes. Not all education loans are eligible for this, but it's a good way to decrease the taxes you pay, especially if you're a cash-strapped student with a limited income. The interest you pay on some student loans can only be deducted if you make under a certain amount of money, based on how you file your taxes.

Home Mortgages: Most home payment plans are set up so that you can deduct the amount of interest you pay on the loan every year. For most people their home is the largest purchase they ever make, and paying a mortgage can actually be a good way to reduce the amount of money you owe on your federal taxes each year. Since most home mortgages are designed to be paid over 30 years, that means that purchasing a house can give you 30 years of possible tax benefits.

Home Equity Loans: 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 upgrades. If your dwelling 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 loan. A home equity loan used to improve your dwelling could eventually raise the value of your house and give you even more equity over time. There are some restrictions about how much of your loan's interest actually qualifies for a tax benefit. In some case you can even get tax deductions for using the money to improve your home's structure like replacing doors with more energy efficient models. For some homeowners some of the cost of a home equity loan can be balanced out with home remodeling tax credits.

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. There are, of course, a lot of variables between these loans. Not everyone will be eligible for all the different tax benefits that these loans may offer. Sometimes your age, the amount of money you want to borrow and the reason of the loan will limit the amount of money you can deduct from your taxes in any given year. 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 deductions you are eligible for. - 31387

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