I used money from my home equity loan to pay off some of my personal debts. Can I deduct interest?
In some instances, it is possible for individuals to deduct the interest of such home equity loans on their state and federal taxes, which are, or at least should be, filed annually the Internal Revenue Service.
Despite the fact that the money can be used for reasons other than to buy, build or improve an individual’s place of residency or home, the debt for which the home equity loan is used may still allow the loan’s interest to qualify as home equity debt. No matter how the individual uses the money that they received as a home equity loan, the interest that is paid by the individual each year can be deducted on the individual’s taxes in an itemized list. However, there are limitations that have been placed on the individuals who do so when it comes to the amount of money they can deduct on their taxes in relation to the interest that they have paid on their home equity loans.
These interest amount limitations are based on the individual and are put in place regarding the amount of money the individual pays in interest on their home equity loan each tax year. A couple may deduct up to $100,000 in interest from their home equity loan each year on their taxes. An individual who is married but filing jointly from their spouse may deduct half of this amount annually, provided the individual is able to meet the other criteria and regulations set forth by the Internal Revenue Service. These individuals may only deduct a total of up to $50,000 on their taxes.
A home equity loan is very different from a home equity line of credit and it is important to note this when filing taxes since there are separate requirements and paperwork that needs to be done for each. Despite the fact that they sound similar, the two loans have different things that affect them, including interest. When individuals use their home equity loan money in order to take care of certain aspects of their home or in order to pay off some of their personal loans or debts, the money can be deducted up to the $100,000 or $50,000 limits. These limits are put into place as a generalization. Some other limitations may be put on individuals if they meet certain other criteria.
These limitations can be determined by tax professionals on a case by case basis, but it is important to note that the cap for interest deductions for home equity loans are stopped at $100,000 for couples, or $50,000 for married individuals who are filing their taxes separately. Regardless of the amount that the individual can deduct from their taxes, the interest needs to be deducted on the 1040 form, Schedule A. The interest needs to be placed under the itemized deductions.