Did you know that when you borrow money you could also be reducing the amount of federal taxes you have to pay to the government? Surprisingly, not all loans are equal when it comes times to look at your tax situation. Almost everybody needs to borrow cash sometimes and it makes sense to do your homework before jumping into a big situation involving money. Some loans may give you a tax credit which shrinks the yearly tax you owe and other types of loans can give you a tax deduction which lowers your taxable income. Here's a simple guide to which loans may qualify you for a tax credit, though obviously everyone's tax situation will be different.
Student Loans: Did you know that many loans you take out for education could give you a tax advantage? You can, in some cases, deduct the interest you paid on the loan from your income taxes. Not all education 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 most education|school|student loans can only be deducted if you make under a certain amount of money, based on how you file your taxes.
House Mortgages: Most house mortgages are set up so that you can deduct the amount of interest you pay on the loan every year. For many taxpayers their home is the biggest purchase they ever make, and paying a mortgage can actually be a good way to reduce the amount of cash you owe on your federal taxes each year. Since most home mortgages are set up to be paid over thirty years, that means that purchasing a house can give you 30 years of potential tax deductions. Out of all the loans that have tax deductions associated with them, home mortgages are probably the most well-known.
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 house 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. A home equity loan used to improve your dwelling could eventually increase the value of your home 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 qualify for tax credits for using the money to upgrade your home's structure like replacing windows with more energy efficient models.
Before you take out any of these loans you may want to talk with your tax professional to make sure the tax benefits pertain 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 credits that these loans may offer. Sometimes your living situation, 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 definitely 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 are eligible for.
Student Loans: Did you know that many loans you take out for education could give you a tax advantage? You can, in some cases, deduct the interest you paid on the loan from your income taxes. Not all education 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 most education|school|student loans can only be deducted if you make under a certain amount of money, based on how you file your taxes.
House Mortgages: Most house mortgages are set up so that you can deduct the amount of interest you pay on the loan every year. For many taxpayers their home is the biggest purchase they ever make, and paying a mortgage can actually be a good way to reduce the amount of cash you owe on your federal taxes each year. Since most home mortgages are set up to be paid over thirty years, that means that purchasing a house can give you 30 years of potential tax deductions. Out of all the loans that have tax deductions associated with them, home mortgages are probably the most well-known.
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 house 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. A home equity loan used to improve your dwelling could eventually increase the value of your home 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 qualify for tax credits for using the money to upgrade your home's structure like replacing windows with more energy efficient models.
Before you take out any of these loans you may want to talk with your tax professional to make sure the tax benefits pertain 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 credits that these loans may offer. Sometimes your living situation, 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 definitely 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 are eligible for.
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