Taking Out a Home Equity Loan

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.

  1. 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.
  2. 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.
  3. 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.

Share Article:
Add to GooglePlus

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. Heartland Bank and Heartland Planning Associates are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Heartland Planning Associates, and may also be employees of Heartland Bank. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, Heartland Bank and Heartland Planning Associates. Securities and insurance offered through LPL or its affiliates are:

Not Insured by FDIC or Any Other
Government Agency
Not Bank
Guaranteed
Not Bank Deposits or
Obligations
May Lose
Value

 

The LPL Financial registered representatives associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.


Heartland Bank ("Financial Institution") provides referrals to financial professionals of LPL Financial LLC ("LPL") pursuant to an agreement that allows LPL to pay the Financial Institution for these referrals. This creates an incentive for the Financial Institution to make these referrals, resulting in a conflict of interest. The Financial Institution is not a current client of LPL for brokerage or advisory services. Please visit https://www.lpl.com/disclosures/is-lpl-relationship-disclosure.html or scan the QR code below for more detailed information.

BrokerCheck