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Home Equity Loans and Home Improvement: What Owners Should Know Now

For homeowners looking to finance major repairs and improvements, a home equity loan may be worth it.

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Meanwhile looking for an affordable way to fund your next home improvement project Improved interest rates?

Home equity loan They may be a good option for their relatively low cost and modest qualification requirements. Additionally, when you spend the loan funds on qualifying home improvements, interest may accrue duty free.

Explore your home equity loan options here now to see what you may qualify for.

Home Equity Loans and Home Improvement: What Owners Should Know Now

If you’re a homeowner considering using your equity to make home repairs and improvements, you should first familiarize yourself with the following items.

How can home equity loan interest be tax deductible?

Home equity loan interest (and a Home equity line of credit or HELOC) may be tax deductible if the loan is secured by a qualified residence and is used to make “substantial” improvements to that home.

A qualifying residence can be a borrower’s primary or second home, although restrictions apply if you rent your second home. Note, this may be a house, condo, mobile home, house trailer, boat, or other property with cooking, sleeping, and toilet facilities, as defined by The IRS.

To qualify, you cannot be upside down (have negative equity) in your home. Additionally, you cannot write off interest on more than $750,000 of the loan.

Review your home equity loan options and learn more here.

What types of home improvements qualify for tax deductions?

A Home improvement It is considered “adequate” if it adapts your home to a new use, prolongs its useful life, or adds value to it. Here’s a closer look at the home improvements that qualify under each category.

Adapts a house for a new use

Examples of home improvements that adapt your home to a new use include:

  • Adding an elevator
  • Steps are being replaced with ramps
  • Walls are being removed to create open concept spaces
  • Adding an in-ground swimming pool

Extends the useful life of the home

Home improvements that increase the longevity of your home can include:

  • Adding attic insulation
  • Roof replacement
  • Redo the ductwork

Adds value to a home

Finally, home improvements that can add value to your home include:

  • Installing a central air conditioning unit
  • Adding a tankless water heater
  • Installing energy-efficient windows
  • Build a deck

This is not an exhaustive list so be sure to consult a tax professional before assuming that a particular repair or project will qualify for a home equity loan tax deduction.

What types of home improvements are not eligible for tax deductions?

Many schemes qualify you for tax relief, but not all.

“Home improvements that don’t qualify include repair or maintenance costs. For example, painting a room or fixing a leaky faucet generally won’t qualify as a substantial improvement,” says Carla Dennis, an enrolled tax agent and founder of Carla Dennis & Associates.

However, if a repair or maintenance project is part of a larger home improvement project, it may qualify.

For example, the IRS says that painting your home as part of routine maintenance would not be considered sufficient, but painting it as part of a renovation that may involve other improvements.

If you have any questions about which projects qualify, you may want to consult a tax or financial advisor.

You can now easily check home equity loan rates and eligibility.

Other home equity loan benefits

Home equity loans offer benefits beyond potential tax savings.

Competitive interest rates

If you end up using the funds for other expenses, banks often offer competitive home equity loan interest rates. “Home equity loans typically have lower interest rates than credit cards or personal loans, which can make them an affordable way to borrow,” says Dennis.

Estimated payment

Fixed interest rates also provide predictability. “A fixed interest rate and set repayment schedule make it easier to budget for the loan,” adds Dennis.

Large loan amount (possible)

Additionally, you can borrow more than you have access to through alternative lending solutions. “Because home equity loans are secured by your home, depending on the amount of equity you have in your home, you may be able to borrow a substantial amount of money,” says Dennis.

Is a home equity loan right for you?

Home equity loans can be a great option for homeowners who need a lump sum of cash. However, it’s important to remember that the loan is secured by your home, so the payments need to fit comfortably within your budget.

Using home equity funds For expenses that help you earn savings or returns — such as investing in home improvements, High interest debt consolidationor paying for college tuition — working to improve your overall financial situation can help reduce the risk of taking on debt.

It’s a good idea to shop around and compare at least three banks/lenders so you can find a competitive deal.

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