ANSWERS: 1
  • Only some of the interest on home equity lines of credit is tax deductible. The amount you can deduct depends on your filing status and how you use the proceeds of the loan.

    Interest Limits

    For most home equity lines of credit, you can only deduct the interest on the first $50,000 if you are a single tax filer or the first $100,000 if you are married and file a joint return.

    Home Improvements

    If you use the proceeds from the home equity line of credit for home improvements, the Internal Revenue Service (IRS) treats the interest on a home equity line of credit in the same way it treats mortgage interest, meaning you can deduct the interest on the first $500,000 if you are single or the interest on the first $1 million if you are married and file a joint return.

    Determining Interest

    Your lender should send you a Form 1098 that shows the interest that you paid during the year in Box 1.

    Function

    The deduction for home equity line of credit interest is an itemized deduction, which means you are not allowed to also Form 1040.

    Should You Take Deduction?

    You should only take the deduction for home equity lines of credit interest if all of your itemized deductions exceeds your standard deduction. Other common itemized deductions include charitable donations and mortgage interest.

    Source:

    Bankrate: Tax benefits of a home equity line of credit; George Saenz

    IRS: Form 1098; Mortgage Interest Statement

    IRS: Schedule A--Itemized Deductions

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