Tax Deductible Interest of Home Equity Loans

One of the best advantages that home equity loans provide when you use them for debt consolidation is that their interest is tax deductible on loans up to $100,000.  Interest will be fully tax deductible only if the combined value of your first mortgage and the home equity loan do not exceed the appraised value of your house.

For example, you have a $30,000 home equity loan with an interest rate of 7%. Lets say your to annual interest payments for the first year total $2,100 (it’s actually going to be a little less because you will be making payments on the principal of the loan as well). If this amount is deducted and you fall within the 25% tax bracket, the federal government will pay you back $525.