It’s that time of year again. Taxes are due in just a few short weeks (April 18 for the 2022 filing year) and if you haven’t already submitted your return you should probably get moving. You canand painlessly .
For homeowners, filing a return is a mixed bag. For those with substantial, it can be a valuable deduction to take each year. But as that interest goes down and the equity grows the refund may not be as large.
Fortunately, there’s another way homeowners can benefit when filing their returns. Those who took out alast year may be able to deduct the interest they paid. This can only happen if specific requirements are met. But, in an economic environment still dealing with inflation and high-interest rates, every dollar counts.
In this article, we will discuss when a HELOC can qualify as a tax deduction as well as a few reasons why this type of credit is.
If you’re considering a HELOC then start exploring your options here and check your eligibility or simply use the table below now.
Is a HELOC tax-deductible?
If you took out and used a HELOC in 2022 then its interest may be deductible for the return you’re about to file. If you applied and are using one now, however, you’ll have to wait until next year to get credit. Those who used a HELOC in 2022 can use it as a deduction if it was used to make major home improvements, the IRS says.
“Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan,” the IRS explains online. “The loan must be secured by the taxpayer’s main home or second home (qualified residence), and meet other requirements.”
If these conditions aren’t met, the IRS notes, the deduction isn’t eligible. So, if you used a HELOC to pay off student loan debt or to pay for a wedding, it won’t qualify.
“Generally, you can deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 8a,” the IRS says. “However, any interest showing in box 1 of Form 1098 from a home equity loan, or a line of credit or credit card loan secured by the property, is not deductible if the proceeds were not used to buy, build, or substantially improve a qualified home.”
Not sure if you’d qualify?sort through your return to help maximize your deductions.
Why a HELOC is worth it
In addition to its potential tax deduction each year, a HELOC hasthat may appeal to homeowners in search of extra funding. Here are two additional benefits to know:
- Interest rates are lower than other credit options. Interest rates on HELOCs are around 6% to 7%, depending on your credit score and other personal factors. While that may not be as low as your mortgage rate, it’s still better than a personal loan (around 10% currently) or a credit card (think 20% or more). You can check what HELOC interest rates you’re eligible to receive here now.
- You only pay for what you need. Unlike some other credit types, with a HELOC you’ll only pay interest on the amount you actually use – not the amount you were approved for. So, if you apply for a line of credit for $100,000 but only use $20,000 of that amount you’ll only be on the hook for the interest from the latter amount.
Find out if a HELOC is right for you by exploring your local options here or by using the table below.
The bottom line
Interest tied to HELOCs, assuming the HELOC is used for IRS-approved reasons, may be tax deductible. But that’s not the only reason why homeowners should turn to HELOCs instead of other credit options. This type of credit generally offers lower interest rates than credit cards and personal loans. And you’ll only pay interest on what you use – not the full amount you were approved for at the time of application. Get started with a HELOC now!
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