At this time of year, it is critical to figure out one’s taxable income.
Why is this? The answer is simple. If, based on your taxable income, you have paid more in taxes over the last year, the federal government will issue you a refund. Most people understand this concept, but they may not know all of the things that go into establishing a taxable income.
In a prior post, we talked about how deductions help to lower one’s gross income. One of the most common deductions entails the interest that is paid on certain loans. So which loans can you deduct the interest on? This post will highlight two loans that Uncle Sam will give you a break on.
Home mortgage loans – Arguably the most common loan that taxpayers have, the IRS allows homeowners to deduct the interest paid on first and second mortgages. There are a few rules to follow; such as the loans cannot exceed $1 million, and the deduction can only apply on a primary home and a secondary home.
Home equity loans – The IRS also allows deductions on home equity loans up to $100,000. But of course, there are a number of rules that can affect your ability to deduct the interest. Essentially, if the loan is used to make improvements or repairs on the home, the interest can be deducted. If it is used to purchase a vehicle or to fund a vacation, the interest may not be deducted.
The preceding is not legal advice. If you have additional questions about tax deductions, an experienced attorney can advice you.