Home equity loan vs. store credit card. Which is better for my taxes?

September 17, 2014 by Dave Du Val, EA
House on top of stack of money

Hey Dave,

If I'm going to do home repairs, such as a roof and heating, which will cost about $15,000, would it be better to take out a home equity loan to pay for it or just use my Home Depot credit card, which has a big line of credit available on it?

Vinny

 

Vinny,

From a tax standpoint, if you borrow money to improve your home, and the loan is secured by the home (as it would be with an equity loan), then the debt is considered to be acquisition debt (regardless of the bank label “Home Equity”). The interest on home acquisition debt (up to $1,000,000 principal on the underlying loan) and home equity debt (up to $100,000, subject to limitations) is deductible if you itemize deductions.

On the other hand, if you borrowed the same amount of money from Home Depot, say on their credit card, the loan would be considered to be a personal loan because it is not secured by the home. Interest on personal loans such as this is not deductible.

Only you can compare loan origination costs, repayment terms, etc., to decide what is best for you in your circumstance; the added tax deduction is just one more consideration.

Deductibly Yours,

Dave

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David E. Du Val, EA
Chief Compliance Officer for TRI Holdco

 

Dave Du Val, EA, is Chief Compliance Officer for TRI Holdco. Inc., the parent company of TaxAudit, and Centenal Tax Group. A nationally recognized speaker and educator, Dave is well known for his high energy and dynamic presentation style. He is a frequent and popular guest speaker for the California Society of Tax Consultants, the California Society of Enrolled Agents and the National Association of Tax Professionals. Dave frequently contributes tax tips and information to news publications, including US News and World Report, USA Today, and CPA Practice Advisor. Dave is an Enrolled Agent who has prepared thousands of returns during his career and has trained and mentored hundreds of tax professionals. He is a member of the National Association of Tax Professionals, the National Association of Enrolled Agents and the California Society of Enrolled Agents. Dave also holds a Master of Arts in Education and has been educating people since 1972. 


 

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