Top Strategies For Financial Security
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Top Strategies For Financial Security

Hello, my name is Rhonda. If you have financial goals, this blog can help you achieve them. A few years ago, I realized that I didn't have a good plan for my future and I wondered if my financial needs would be met after I retired from my job. I immediately started planning for my future by speaking with a financial advisor and I learned a wealth of information at our meetings. By following the recommendations of my advisor and by learning everything I could about finances and money, I now feel very secure about my future. If you need financial help for retirement planning, college savings or even for an emergency fund, you can get sound advice by reading my blog. I believe that by following a few basic strategies, everyone can meet their goals and be financially secure.


Top Strategies For Financial Security

Using A Tax-Deductible Home Equity Loan To Fund Any Chosen Purpose

Kent Cook

Home equity is a measurable asset that is sometimes underutilized. As a primary mortgage is paid down, the corresponding increase in equity often goes unnoticed. A rise in the value of a home also creates equity for the owner. Many homeowners are in a position to obtain a home equity loan and receive a tax deduction for the interest paid, regardless of how the loan proceeds are spent.

Unlike your primary mortgage, the funds from a home equity loan do not have to be used on the house itself. For example, some homeowners with home equity might choose to finance the cost of a personal automobile, which is normally not tax-deductible. By doing so, the price of the car itself is paid in full when the car is purchased. The only loan that remains outstanding is the tax-deductible home equity loan.

Home equity debt limitation

To deduct home equity debt, the market value of your home must exceed the amount of all other mortgages on the home. The level of home equity debt on which interest can be deducted is limited to the amount of equity, or $100,000, whichever is smaller. If you file your tax return as married filing separately, interest may be deducted on up to $50,000 in home equity debt.

Tax filers may deduct regular mortgage interest on both a main home and a second home. You may also deduct interest on two home equity loans, as long as the loan amounts do not exceed the equity in each respective property. Whether you have one home or two, the total limit for home equity debt on which interest can be deducted remains $100,000.

Interest rate comparison

Instead of purchasing an asset such as an automobile, you might prefer to use the funds to pay down any non-deductible debt that carries a higher interest rate. A home equity loan is secured by your home, so the interest rate may be lower than the rates on car loans or credit cards.

Itemized tax deduction

Like regular mortgage interest, the deductible interest on home equity debt is deducted as an itemized deduction. If the total debt on your home loans exceeds the market value of your home, a worksheet calculation is necessary to determine the exact amount of interest that is deductible.

Despite the tax advantage of a home equity loan, some homeowners prefer to carry no more than one primary mortgage on their personal residence. Contact a financial planner for more information about how mortgage choices affect your overall financial plan.