Are Home Equity Loans Tax Deductible?

Before we dive too deep into the potential benefits of a home equity product, let’s take a moment to explain the difference between a home equity loan and a home equity line of credit or commonly known as HELOC.

Home Equity Loans vs Home Equity Lines of Credit

The first option for tapping into your assets is through a home equity loan. With this product, homeowners can borrow a lump sum amount of the available equity in their home with a monthly principal and fixed-rate interest payment. The second option of borrowing is through a home equity line of credit.

With a HELOC, a homeowner can borrow funds via a revolving line of credit with an adjustable interest rate based on the used amount of the loan first. During the repayment period of a HELOC, the borrower will then repay the loan amount in full.

What is the Tax Benefit of a Home Equity Loan?

As a homeowner, the interest you pay on a home equity loan can provide a tax benefit when you meet certain conditions. Typically, when a home equity loan is utilized to make improvements to the home can fall under these conditions. While these circumstances are general, it’s always best to consult with your tax advisor or with the IRS for your specific financial situation.

A home equity loan or HELOC can be a great way to financially tackle your home projects. Building an addition to your existing home, exterior and interior modifications, as well as improvements or repairs to your heating or plumbing, are just a few examples of potential tax-deductible expenses when using your home’s equity. Again, there are no cut-and-dry rules when it comes to the IRS, so it’s a good practice to get advice from a trusted tax advisor.

With the cost of homes continually on the rise, many homeowners have seen an increase in the available equity in their homes. This marks a great time to take advantage of these extra funds towards larger projects and improvements around the home. If you’re considering the benefits of a home equity loan or HELOC for you and your financial goals, our mortgage experts are here to help answer your questions. Ready to apply? Visit one of our convenient local branches, call us at 804-274-1200, or click here to apply online.