Reduce Your Income Taxes With These Common Loans

Just about everybody wants to borrow cash sometimes and it’s smart to do your research before jumping into a big loan. Were you aware that when you take out a loan you could also be shrinking the amount of taxes you have to pay at the end of the year? Surprisingly, not all loan programs are equal when it comes times to look at your tax situation. Some loans can give you a tax credit which shrinks the income tax you owe and other kinds of loans can give you a tax deduction which reduces your gross taxable income. Here’s a quick guide to which loans may qualify you for a tax credit, though obviously individual cases will be different.

School Loans: Did you know that some 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 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 education loans can only be deducted if you make under a certain amount of money, based on how you file your taxes.

Home Mortgages: For most people their home is the biggest 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. Most house payment plans are set up so that you can deduct the amount of interest you pay on the loan every year. Out of all the loans that have tax benefits associated with them, home mortgages are probably the most well-known. Since most home mortgages are designed to be paid over thirty years, that means that purchasing a house can give you 30 years of potential tax benefits.

Home Equity Loans: 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 borrowed money. There are some restrictions about how much of your loan’s interest actually qualifies for a tax deduction. You can use a home equity loan for a number of things, you may be able to get additional tax credits by using the money for home improvements. In some case you can even qualify for tax credits for using the money to upgrade your house’s energy efficiency. A home equity loan used to improve your dwelling could eventually raise the value of your dwelling and give you even more equity in the long run. For many people some of the cost of a HELOC can be minimized with home improvement tax credits.

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 to look into what sort of tax benefits you qualify for. There are, of course, a lot of variables between these loans. Everyone will not 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 purpose of the loan will limit the amount of money you can deduct from your taxes in any given year. 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.

Want to learn more about the ins and outs of home loans? Check out our site to learn more about how to modify a home loan, upside-downmortgages and the home buyer tax credit extension.

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