- Thread starter John B.
- Start date
First of all I am not an accountant.
The deduction on your taxes is based on how much interest you pay on your mortgage.
Not how much you have borrowed.
Your deduction would be larger on $90,000 at 6% interest than 5% on a $100,000 note.
But why pay an extra dollar on interest to save 30 cents in taxes.
Consult your accountant for the best infro.
Gary
The deduction on your taxes is based on how much interest you pay on your mortgage.
Not how much you have borrowed.
Your deduction would be larger on $90,000 at 6% interest than 5% on a $100,000 note.
But why pay an extra dollar on interest to save 30 cents in taxes.
Consult your accountant for the best infro.
Gary
waltdavies
Member
If you are over 62 and don't farm the land look into a reverse mortgage.
Walt
Walt
MarkB_MI
Well-known Member
- Location
- Motown USA
The deduction is the same as would be for any mortgage; that is, you get a deduction for actual interest paid.
By "home equity loan", I assume you actually mean a home equity line of credit (HELOC). That is, you have a line of credit, of which you're usually required to take a certain amount at the time the loan is closed, but you can borrow up to your line of credit for a certain term and you can also repay in full at any time after a specified date. So the balance can go up and down.
The thing to remember about mortgage interest in general is that your tax savings depends on your tax bracket. So if you're in the 25 percent marginal tax rate bracket, your tax is reduced by 25 cents for every dollar you pay in interest. In other words, don't draw any more from your HELOC than you actually need. If you were going to purchase something with a credit card at, say 12 percent interest, then it makes sense to use your HELOC that charges 3 percent interest instead, even without the tax deduction. On the other hand, if you can get a car loan for 2.5 percent interest it wouldn't make sense to use a 3 percent HELOC to buy a car unless you're in a very high tax bracket.
By "home equity loan", I assume you actually mean a home equity line of credit (HELOC). That is, you have a line of credit, of which you're usually required to take a certain amount at the time the loan is closed, but you can borrow up to your line of credit for a certain term and you can also repay in full at any time after a specified date. So the balance can go up and down.
The thing to remember about mortgage interest in general is that your tax savings depends on your tax bracket. So if you're in the 25 percent marginal tax rate bracket, your tax is reduced by 25 cents for every dollar you pay in interest. In other words, don't draw any more from your HELOC than you actually need. If you were going to purchase something with a credit card at, say 12 percent interest, then it makes sense to use your HELOC that charges 3 percent interest instead, even without the tax deduction. On the other hand, if you can get a car loan for 2.5 percent interest it wouldn't make sense to use a 3 percent HELOC to buy a car unless you're in a very high tax bracket.
john in la
Well-known Member
The simple answer is Yes.
The more you borrow; the more interest you will pay in a given year; so the bigger deduction you will have off your taxes.
But like the others said; It does not make sense to borrow more just to get 25 cents on the dollar spent back in taxes.
Where a home equity loan helps is if you want to add a pool or redo a kitchen. Borrowing the money outright for a pool or a kitchen has no tax advantage and most times has higher interest because it is really unsecure. With a home equity loan it is guarantied by your house so lower interest plus tax advantage.
On the other hand a home equity loan can put you so upside down in your house you better pray nothing happens before you can get the loan paid off; especially if it causes you to lose the house because you just had to have that pool.
The more you borrow; the more interest you will pay in a given year; so the bigger deduction you will have off your taxes.
But like the others said; It does not make sense to borrow more just to get 25 cents on the dollar spent back in taxes.
Where a home equity loan helps is if you want to add a pool or redo a kitchen. Borrowing the money outright for a pool or a kitchen has no tax advantage and most times has higher interest because it is really unsecure. With a home equity loan it is guarantied by your house so lower interest plus tax advantage.
On the other hand a home equity loan can put you so upside down in your house you better pray nothing happens before you can get the loan paid off; especially if it causes you to lose the house because you just had to have that pool.
Ted in NE-OH
Well-known Member
Stay out of debt and no one can take it away from you.
Wheres Waldo
Member
IaGary, you may not be an accountant, but you summed it up nicely. My inlaws lost their farm by borrowing and thinking that the more they sent (on interest) the more they'd get back. I tried way back when I was a newlywed to their daughter to explain this, but the advice fell on deaf ears. How could I POSSIBLY be a better advisor than their Banker, whom they'd done business with for over a decade? Well, all I know is I still have my little place; mortgage lasted less than two years when I realized (at age twenty) what the interest took. As for a 'reverse mortgage', please don't get me started on what has gotten nearly a third of the folks that bought into the 'Fonz' and Fred Thompsons' advice into FORECLOSURE!! NEVER borrow against your future to pay a debt that was began a short time ago.
DaninKansas
Member
You can deduct the interest that you pay (primary home - other IRS requirements) - if you have enough to itemize. The correct statement is the more interest you pay the less tax you pay the government.
Some people use "home equity loans" to finance their cars. Instead of nondeductable interest on your car loan you have a home equity loan that the interest is deductable. Usually the interest rate is better too.
Or you can go the easy route and jsut pay cash for your car.
Some people use "home equity loans" to finance their cars. Instead of nondeductable interest on your car loan you have a home equity loan that the interest is deductable. Usually the interest rate is better too.
Or you can go the easy route and jsut pay cash for your car.
A few years ago my sil and I bought a foreclosed house with my home improvement loan. As we fixed it up I used the loan to purchase things for the fixer upper. The loan interest was 1.75% and I had checks and credit card for the loan. The monthly payment was interest only which was low. We sold the house after a few months and I paid off the loan. It was an easy way to be in business temporarily. The home equity loan is still active today but I think it will terminate in a couple of years.
Assuming you have the cash, us poor ordinary folks usually don't have 15 - 20 thousand in cash sitting around, but never the less....
We've used a home equity loan to pay for good buys that come up such as a truck that was offered to us for $5,000 less than current market value. We'd been looking at them and my MIL was getting rid of hers and wanted to just sell it for her pay-off amount. With the HELOC we already had set up, and had just about payed off, we just wrote a check from it to her. We decided to consider it a 4 yr. loan and made the monthly payments on that schedule, otherwise we'd be paying, seemingly, forever at the miniumum the bank wanted (only $50!)
In my opinion to use it just for interest deduction isn't worth it for ordinary folks of average means. Our car we financed at our bank, at 2% interest, it was better than the HELOC rate that is about 4.25. My other advice is to not finance something with your house that you can't pay back in the normal payback period if you were dealing through a bank, i.e., don't buy a car and pay it off over 10 years on the HELOC, likely the car will be gone or needing major repairs and you are still paying on it, and you will technically be upside down on it for a long long time. As some folks found recently, you can get upside down on your house if values drop again too!
Tx Jim
Well-known Member
- Location
- Coyote Flats, Texas
I agree!!!!!!!!!!!! If it's highly advertised on TV then RUN don't WALK away!!!!!!!!
The more you borrow all you get is a bigger note, interest is deductible but will only save you whatever your tax rate is, $3000 interest = $750.00 actual tax savings in the 25 bracket. If you want to pay less tax and get ahead either buy capital equipment for a farm or business, both of which are 100% deductible in the year of purchase if the value does not exceed the section 179 limits, or put more money in deferred retirement accounts
Dick, I thought the same thing. I have a friend who needed money to help out one of his kids. He had no savings but did have his home clear. He looked into refinance but he was going to have to make payments which would have been tough on fixed retirement. It also put him or her in danger of losing home when one of them dies with only 1 SS check. So he looked into reverse mortgage. He got the money, no payments, and can live in the house until who ever dies last, him or wife. Sounds like a pretty good deal to me. Now, should he have done that for the kid is a whole nother story?????
DaninKansas
Member
Dave would fail as a farmer.
With farming there are 3 places your money can or will go, bank, implement dealer, and the government. If you pay yourself instead of the bank, the government will get more but you will get far more.
Just take it with you when you die. My accountant always told me to put it in travelers checks because they are good anywhere.
Just take it with you when you die. My accountant always told me to put it in travelers checks because they are good anywhere.
DaninKansas
Member
How'd they start?
I dont think he could pull a plow to save his life and I would even bet he couldnt start a tractor if he had a gun to his head... BUT I bet he could make money at farming. A person doesnt get to be worth an estimated 55 million by being an idiot. Granted, his lack of knowledge about farming would hinder him due to decisions being harder (namely equipment decisions and repair or land/fertilizer use) but I think he would still make money at farming or anything else he did.
He built a 4 million dollar real estate empire by age 26. AGE 26! People like that dont just fail at things and when they do (like he did with his real estate), they rebuild. His one on one financial counseling business now has 350 employees, and it was all built up debt free. If you are employing more than 350 people with your ideas, maybe you should be sharing how its done, rather than just saying it [b:1322331bf9][i:1322331bf9]cant[/i:1322331bf9][/b:1322331bf9].
I dont use Daves methods but similar ones and I gotta say, its pretty nice once things start coming together....
Patrick Potter
Member
Unless you are getting the home equity to drop interest rate and shorten the loan do not mess with it I got one to drop interest and cash out for different things around the house and have regretted it ever since
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