Comments on: Want to combine 2 home equity loans – how to claim on taxes.?

By: Arthur R

Arthur R — Tue, 27 Oct 2009 02:53:51 +0000

First, let’s look at the tax characterization of the two loans. Your home equity loan taken out for home renovation is considered an "acquisition loan", is deductible (together with your mortgage, if any) up to a $1,000,000 balance. It remains deductible against rental income after you move and rent out the home.

Your other loan remains a home equity loan, is deductible up to a $100,000 balance as long as you live in the home, and is not deductible against rental income. You probably should have claimed it. It’s not too late for tax years 2004-2007, and possibly longer, because of military extensions.

Now, as for allocation, if you refinance, the new loan should be allocated to the property according to the relative balances of the two loans, and that fraction of the interest should be deductible. For example, if your home renovation loan balance is $40,000 at the time of refinance, and your other home equity loan balance is $20,000, then 2/3 of the interest will be deductible.

By: milkncookie

milkncookie — Tue, 27 Oct 2009 02:53:51 +0000

You can still claim a portion of the interest on your new home equity loan as a rental expense, and you can also claim the interest on your new mortgage as an itemized deduction.

Use any reasonable method to allocate the interest on the new, combined home equity loan between your rental expenses and your personal debt consolidation.

For example, if you combine your home equity loan for renovations ($35k) and your consolidation loan ($15k), then you can probably take 70% (35 / (35+15)) of the interest on your new loan as a rental expense.

By: kckid2

kckid2 — Tue, 27 Oct 2009 02:53:51 +0000

Once you converted the home to rental, all interest expense from that point forward becomes rental expense. What you used the proceeds for is not relevant.

Deduct on Sch E

By: Norah

Norah — Tue, 27 Oct 2009 02:53:51 +0000

If you are a first time borrower of a home equity loan it is imperative that you have a checklist of essential questions that you need to ask each and every lender. The answers to these questions will provide a valuable reference to base your comparisons on. What’s the interest rate? Knowing this is crucial. The interest rate will determine

http://best-loans.awardspace.com/homeloans.htm

In adjustable rate, when will rates change? If your interest rate on the home equity loan is of the adjustable variety, you need to know three things: when the rate is going to change (that is under what conditions), how frequently will the rate change and what’s the average–>percentage by which the adjustable rate will change. What is the Annual Percentage Rate or APR? The APR on the home equity loan will determine the yearly payment you will need to make towards this.The higher the payment in terms of points, the lower is the interest rate.