Reduce Your Income Taxes With These Common Loans

Almost everybody needs to borrow cash sometimes and it’s smart to do your research before jumping into a big loan. Were you aware that when you borrow money you could also be shrinking the amount of taxes you have to pay at the end of the year? Surprisingly, not all money borrowing programs are the same when it comes times to pay your taxes. Some loans can give you a tax credit which shrinks the tax you owe and other kinds of loans can give you a tax deduction which lowers your gross taxable income. Here’s a simple guide to what loans may qualify you for a tax credit, though obviously individual cases will vary.

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 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 cash-strapped student with a limited income. The interest you pay on many education loans can only be deducted if you make under a certain amount of money, based on your individual filing status.

House Mortgages: Out of all the loans that have tax benefits associated with them, house mortgages are probably the most well-known. Most house payment plans are designed so that you can deduct the amount of interest you pay on the loan every year. Since most home loans are designed to be paid over 30 years, that means that buying a house can give you 30 years of possible tax benefits. For most people their home is the largest purchase they ever make, and paying a mortgage can actually be a good way to reduce the amount of money you owe on your income taxes each year.

Home Equity Loans (HELOC): A home equity loan used to improve your house could eventually increase the value of your house and give you even more equity in the long run. If your house is more valuable now than when you bought it then you might be able to take out a home equity loan and deduct the interest you pay on that loan. 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 variety of things, you may be able to get additional tax credits by using the money for home upgrades. For many homeowners some of the cost of a HELOC can be minimized with home repair tax deductions.

Sometimes applying for the right kind of loan can literally save you thousands of dollars on your income taxes, so it’s worth investing a little bit of time and energy to look into what sort of tax credits you qualify for. There are, of course, a lot of variables between these loans. Everyone will not be eligible for all the different tax deductions that these loans may offer. Sometimes your age, 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.

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

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