Handling Your Debt – What Tax Implications Are There?
Sometimes when considering different ways to handle debt some fail to consider how some options may have a better tax benefit than others
. Determining the tax implications of financial options is not an easy task. It is a good idea to avail yourself of a good computer program to guide you. If you do not have that available to you there are some helpful hints that you can benefit from.
Almost always your largest debt is the mortgage on your home and this is where the greatest interest is paid. Also, the interest paid on your mortgage is often your largest tax write off. Since your mortgage is usually a 30 year loan, the greatest portion of your monthly payments for many years is interest. Because of this your taxable income can be offset by a good portion of that interest paid.
Other types of debt have other tax concerns that should be considered when working on a financial plan.
One tool that has been used effectively in financial planning is a home equity line of credit (HELOC). Though originally these loans were used mainly for improvements on your home, it has been discovered that this loan can be beneficial in paying off credit cards, financing a car and many other things.
Even if your home equity loan has the same interest rate as your credit card it is still the better option. Unlike interest paid on credit cards, the interest paid on your HELOC is tax deductible. The clear tax benefits make a second mortgage or HELOC a smart choice.
It is wise to check out several options when deciding what is right for you. Utilizing loan calculators on line can help you do the math and determine what best meets your personal situation.
Refinancing debt using credit cards is very costly. At times that needs to be done, and of course no solution fits all circumstances. Sometimes people find themselves buried in medical debts, and at times a loan can be obtained to pay these off.
It can be beneficial to finance medical expenses or other debts into a new loan because at times the interest paid on said loans is tax deductible.
Programs for filing your taxes can give you a good indication what are the best options for you. It can help determine if any portion of interest paid on student loans or other debts is tax deductible. Once you input your information into the program it will show you the tax implications of different methods of financing