Credit Equity Home Line Tax

Can I pay off my car loan with my HELOC and the interest will be tax deductable?

What you use the funds for absolutely DOES affect the deductibility of the interest on a HELOC! Here are the basic rules, followed by my commentary on the advisability of doing this:

1. The HELOC must be secured by your home.

2. The interest is deductible subject to the usual $1,000,000 limit if it's used to purchase or improve your home.

3. The interest on up to $100,000 is deductible if the proceeds are used for anything BUT home purchase or home improvements.

Using a HELOC to pay off a car loan is usually a very bad idea. If you fall on hard times it's one thing to lose your car to the repo man but an entirely different bucket of turds to lose your home because you can't pay off the car note!

The value of the deductiblity of the interest on the HELOC is not likely to be as much as you think. If you pay $800 worth of interest and are in a 25% tax bracket you'll only save $200 in taxes. That's not a lot of benefit to risk your home for!

Unless you pay off the HELOC on the same schedule that your current car note has you'll be paying on that car long after it's been hauled off to the junk yard. Making payments on things that you no longer own is REALLY bad financial planning!

Lastly, your car note most likely has a fixed rate. Most HELOCs have a VARIABLE rate and that rate could easily rise above what you're paying on your car note. That could wipe out any benefit of the deductiblity of the HELOC interest as your total out-of-pocket costs could be higher in the long run.

2008-01-20 07:35:28 by none

Usually, if a person uses a home equity loan for debt consolidation, home improvements or to pay for tuition, the interest is fully tax deductible ...

Interest on home equity loans is deductible.within limits.

2007-09-16 17:08:20 by Anthony S

I recently remortgaged and I took out a "home equity line of credit" along with the refinance. I don't especially need it and don't have plans to use it, but as the loan agent put it;
"Its free for refinancing with us.... and isn't it nice to know its there for an emergency?"

'Well, yea!' I thought to myself.

I was stunned to find I have to pay mortgage tax on this home equity line of credit, before and, whether or not I ever take the money. Does anyone know, if I never do use this money... can I get a refund of this tax?

No, no refund.

The tax is imposed on the recording of the instrument based on the maximum amount the credit can reach.

Count your blessings. When HELOCs were first allowed under New York Law (and NY is the only state that taxes mortgages; other states tax borrowing, but NY taxes collateralizing with real estate) the State Tax Commission wanted to collect the mortgage tax on readvances.

You should not have been stunned. The bank should have sent you a "good faith estimate of settlement charges" at or before the time you actually made the application. If they did not, or if they omitted the mortgage tax, then there are penalties that you could discuss with a lawyer.

2007-05-14 09:46:46 by Millermom M

Would a Home Equity Line of Credit or loan used to buy a home be considered a Home Aquisition Debt instead of a Home Equity Debt?

For HELO interest on principal beyond $100k to be deductible, the proceeds must be plowed back into the property pledged as security. If it's used for any other purpose, the interest on the amount of the loan over $100k is non-deductible. To be considered as acquisition debt, the property acquired must be the security for the loan.

2008-05-31 01:18:06 by Evan

Use TurboTax. It will ask for everything that you need.

2006-02-03 07:25:56 by simplisticyuma