It’s that time of year again. Taxes are due in just a few weeks (April 18 for the 2022 filing year) and if you haven’t already filed your return, you should probably move. you canand painlessly .
For homeowners, filing returns is a mixed bag. For those who are notable, this can be a valuable deduction to take every year. But as that interest goes down and equity goes up, the refund may not be as big.
Fortunately, there is another way homeowners can benefit when filing returns. Those who take outThey may be able to deduct the interest paid in the previous year. This can only happen if certain requirements are met. But, in an economic environment still dealing with inflation and high-interest rates, every dollar counts.
In this article, we’ll discuss when a HELOC may qualify as a tax deduction, as well as why this type of credit works..
If you’re considering a HELOC, start exploring your options here and check your eligibility or use the table below now.
Is a HELOC tax-deductible?
If you have and use a HELOC in 2022, the interest can be deducted on the return you file. If you apply and use one now, you’ll have to wait until next year to get the credit. Those who used a HELOC in 2022 can use it as a deduction if it’s used for major home improvements, the IRS says.
“Interest on home equity loans and lines of credit is deductible only when the borrowed funds are used to purchase, construct, or substantially improve the taxpayer’s home that secures the loan.” The IRS Explained online. “The loan must be secured by the taxpayer’s principal home or second home (qualified residence) and meet other requirements.”
If these conditions are not met, the IRS notes, the deduction is not eligible. So, if you’re using a HELOC to pay off student loan debt or pay for a wedding, it won’t qualify.
“Generally, you can deduct home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 8a,” the IRS says. “However, any interest shown in Box 1 of Form 1098 from a home equity loan, or a line of credit or credit card loan secured by property, is not deductible if the proceeds are not used to purchase, construct, or substantially improve a qualified home. “
Not sure if you qualify?Sort through your return to help maximize your deductions.
Why a HELOC is worth it
In addition to potential tax deductions each year, there is a HELOCThat can appeal to homeowners looking for additional funding. There are two additional benefits to be aware of:
- Interest rates are lower than other credit options. HELOCs have an interest rate of around 6% to 7%, depending on your credit score and other personal factors. While it may not be as low as your mortgage rate, it’s still better than a personal loan (currently around 10%) or a credit card (think 20% or more). You can now check what HELOC interest rates you qualify for here
- You only pay for what you need. Unlike some other types of credit, with a HELOC you only pay interest on the amount you use — not the amount you’re 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 interest from the next amount.
Find out if a HELOC is right for you by exploring your local options here or using the table below
Interest attached to a HELOC may be tax deductible, assuming the HELOC is used for an IRS-approved reason. But that’s not the only reason homeowners should turn to HELOCs instead of other credit options. This type of credit usually offers lower interest rates than credit cards and personal loans. And you’ll only pay interest on what you use — not the amount you approved for at the time of application. Get started with a HELOC now!