Is a Home Equity Line Of Credit Tax Deductible?

Is a Home Equity Line Of Credit Tax Deductible?
By Jimmy Sturo

Many people invest in real estate by making a full upfront payment, but are not financially sound enough to renovate or refurbish it. These people can avail of a personal loan against their property with a home equity line of credit or HELOC. A HELOC offers a higher loan amount than other similar loans based on the credit limit of the borrower.

A HELOC allows a borrower to explore the extent of credit obtainable from lenders. Repayments have to be made every month, along with the interest that could be tax- deductible. There are limitations on the deductions on the personal tax returns for the interest paid on HELOC.

Only that part of the interest on debt can be deducted, which cannot exceed the value of the collateral on a home and has to be less than $100,000.

If the borrower makes the real estate investment as a corporate entity, then deductions in the form of the business interest expenses can be expensed. This transaction needs to be reflected on personal returns.

It must be documented in writing and should be within the limits of normal business transactions. Customers need to consult their tax consultants and advisors on the legality involved in order to save on tax.

Financial consultants will give advice on planned tax-breaks regarding HELOC. The interest deduction is not a dollar-for-dollar reduction of the taxes. It is only a percentage. The deductions may not be as valuable due to the declining tax rates.

If the adjusted overall income is high enough, the phase-out for itemized deductions may prevent the borrower from taking a full deduction. Advisors warn against choosing a HELOC simply for the benefit of tax deduction, as many other deals also provide similar tax advantages.

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Is a Home Equity Line Of Credit Tax Deductible?

Understanding Home Equity Line of Credit

Understanding Home Equity Line of Credit
By John Glasburg

Home equity line of credit (HELOC) functions more like a typical variable rate credit card. You are allowed to borrow up a specific amount of money - your credit limit - and you may tap the credit anytime you want, usually by making a check.

Typically, the lender calculates the sum of your credit line based on the percentage (generally between seventy-five and eighty percent) of your house's appraised value and then subtracts it with the outstanding balance of your current mortgage. Your lender also evaluates your credit score and/or credit history and reviews your overall financial condition.

If you have to repay the home equity loan by paying fixed monthly payment that include both principal and interest, then with a HELOC you generally have the option to make a payment only on the interest each month or paying principal and interest on the debt.

If you choose to make interest-only payment, the payment amount depends on the current interest rate and also the amount of your total credit limit. Say, if your HELOC is $30,000 but you have borrowed only $10,000, the interest is calculated only on the $10,000.

The actual problem with paying only the interest is that the more time the principal is left unpaid, the more the HELOC costs you, particularly if the interest rate begins to rise.

Also, if the HELOC expires after a specific number of years and there are no provisions for renewing it, your lender will probably ask you to pay the entire amount you still owe based on a lump sum payment, also called as a balloon payment and if you can't afford to pay then you may lose your property.

Federal law necessitates lenders to cap the rate of interest they charge on your HELOC. Before you sign the HELOC-related paperwork, you should get clear on the interest rate cap. Also, ask if you can convert your HELOC for a fixed interest rate.

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Understanding Home Equity Line of Credit

Bad Credit Home Equity Line of Credit Loans – Three Things to Know

Bad Credit Home Equity Line of Credit Loans – Three Things to Know
By Carrie Reeder

Home equity line of credit loans can get you the money you need to consolidate debt, make home improvements, pay college tuition, and much more. Though bad credit home equity lines of credit are available to those who need them, there are a few things borrowers should know before applying.

Rates Will Vary

Interest rates on bad credit home equity line of credit loans can vary significantly. To make sure you get the best rates, you will want to get at least three quotes before accepting an offer. You will also want to keep in mind that though bad credit will require you to pay higher rates, you are still entitled to fair treatment. Make sure the rate you are being quoted is in line with what someone with your credit score should pay. Multiple quotes will help in this respect as well.

Terms and Conditions Can Vary

Different lenders offer different terms on bad credit home equity line of credit loans. Before signing any papers, make sure the terms and conditions on your loan are reasonable for your financial situation. You don't want to get yourself into a tight spot by agreeing to pay back more money in a specific time period than you can afford.

Fees Will Vary

As with almost any loan, there are fees associated with bad credit home equity line of credit loans. Most borrowers end up paying many of the same costs that were paid out with the original loan, such as title fees and points. These costs can add up fast and vary depending on the lender that you work with. Before taking out a bad credit home equity line of credit, you will want to make sure you fully understand exactly how much the loan will cost you.

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Bad Credit Home Equity Line of Credit Loans – Three Things to Know

Homebuyer Tax Credit Time Line - Time is Running Out

Homebuyer Tax Credit Time Line - Time is Running Out
By Douglas Boncosky

If you are thinking about buying a home and taking advantage of the Homebuyer Tax Credit of up to $8,000, if you wait too long, you could run out of time and your contract for purchase could go bad, the April 30th deadline may pass, and then you miss out on the tax credit.

For example, if you wait until April 15th to find a home to purchase and go under contract, if there are financing issues, home inspection issues or seller issues that come up after that contract that can't be resolved and that contract is cancelled, you may not have enough time to find another home and go under contract by the April 30th deadline.

When you go under contract to purchase a home, not all deals happen either because of financing issues, home inspection issues, seller issues, or some other unexpected or unplanned for situation that would cause that contract to be cancelled.

If your deal is cancelled shortly before or after the deadline of April 30, 2010 to be under contract to qualify, you could be out of luck. Remember, to qualify for the tax credit, you have to be under contract by April 30, 2010 and close by June 30, 2010.

Here's a backwards timeline:

April 1, 2010 - This date should be your deadline to find a home. This will allow time for the home inspection, time for any issues from the home inspection to be worked out, and time for the lender to conditionally approve your loan. If the deal falls apart, you still have time to find another home.

March 1, 2010 - Start shopping for a home. You may get lucky and find a home immediately and be happy with your choice. For others, once they start looking, they may realize that based on what type of home they are getting for their money, they may need to expand their search into other towns and neighborhoods.

Between work schedules and living life, the last thing one wants to do is be preasured to pick a home. If you are searching for foreclosures, you will definitely need to allow more time as someone else may come along, like the same home that you do and offer a bit more money stealing the deal away from you.

February 15, 2010 - Get Pre-approved. You will want to sit down with a highly qualified mortgage professional who will take the time to help you determine how much home you can afford to buy (you can read the article on this blog on "How to Find A Mortgage Professional"). You will need to allow a week for this process to take place as in some cases you can be pre-approved the same day, while in other cases it might take a few days.

Since this is February 1st, you will want to get the ball rolling if you plan to take advantage of the Homebuyer Tax Credit.

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Homebuyer Tax Credit Time Line - Time is Running Out

Home Equity Line of Credit (HELOC) Basics

Home Equity Line of Credit (HELOC) Basics
By F. Smith

Home Equity Line of Credit (HELOC) is term to describe loans that uses a borrower's home as collateral. Also referred to as home equity line, lenders determine the maximum loan balance available where homeowners could draw credits at their judgment. Like all typical loans, a predetermined interest rate is agreed upon based on current market rates.

HELOCS should not be confused with other home loans such Reverse mortgages for example. Unlike Reverse Mortgages, the total amount of credit could not be released upfront but funds could be steadily drawn from the credit in a period usually lasting anywhere from 5 to 25 years. Borrowers are not required to make immediate payments on the drawn funds, only that they make a predetermined minimum payment.

Loans could be paid in increments during the draw period but all remaining balance must be paid before the loans maturity date. At the end of the draw period borrowers are expected to payback the full principal of the loan made. They are also required to pay a HELOC balloon payment and male payments based on a loan amortization schedule.

These types of loans offer borrowers a degree of flexibility in terms of loan repayments. Homeowners may choose a number of payment options which only require them to make pre agreed minimum interest payments.

HELOCS are similar to having a credit card line. Credits are drawn in a specific period against the maximum available home equity. Like credit cards, borrowers are required to make minimum monthly payments until credit are fully paid.

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Home Equity Line of Credit (HELOC) Basics