FSBOBOLINKS

Home Equity Loan Tax Deduction

By Steven R. Shanin, Attorney at Law

You can deduct the interest you pay for your home equity loan, but there are certain limitations.

Generally, home mortgage interest is any interest you pay on a loan secured by your main home or even a second home and includes home equity loans.

These home equity loan tax deductions include home equity loans and home equity lines of credit.

The conditions that must be met for home equity loan tax deductions are:

1. You must file Form 1040;

2. You must itemize your deductions on Schedule A;

3. You must be legally liable for the loan and both you and the lender must intend for the loan to be repaid. In other words, the IRS wants to make sure that you are not trying to evade taxes, such as the gift tax, by using a home equity loan as a subterfuge in order to qualify for home equity loan tax deductions;

4. The debt must be secured by a mortgage, deed of trust or land contract. In other words you have put up your home as collateral in order to qualify for home equity loan tax deductions.

Although home equity loan tax deductions are for homes, in addition to your primary home, these can include a second home, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking and toilet facilities.

Remember: The above is a general overview of home equity loan tax deductions and is not intended to be legal advice. The IRS has additional regulations and limitations. We advise you to look up IRS Publication 936 as well as consulting your tax advisor before taking any home equity loan tax deductions.

© 2007 Complete Books Publishing, Inc. 

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Bridging Loans

Bridging Loans

Bridging Loan: Bridging loans or gap loans are loans used to bridge the gap between two transactions. Duh! Pretty simple, eh? Were it so. First of all, sellers would not be in a position to need bridging loans if everything they were planning had gone as they had wished. Second, bridging loans cost money, in the form of additional interest over and above that of a longer term loan and the balloon note of repayment sitting out there at the end of the loan.

Caution dictates that a seller should wait until his/her current home sells before buying another house. However, whether due to relocation, change in family or job-related circumstances, or simply a slowing market for home sales, people sometimes find themselves with two houses. These are typical situations where sellers will need bridging loans. Bridging loans enable a seller to borrow against the equity in his/her current home until it sells.

Bridging loans usually include a balloon note that has to be repaid at the end of loan period. This can be disastrous if the home used for equity does not sell or does not sell for as much as necessary. However, if that home sells fairly quickly or for the expected amount of money, the bridging loans can be rolled into the new home mortgages in order to satisfy the balloon repayments of the bridging loans.

Obviously, if the house you are selling has good contract on it to a seller who has a locked in mortgage from a solid mortgage company, then a bridging loan can be a lifesaver. However, with the failure of a number of so-called front-line mortgage companies, it is hard to justify the use of a bridging loan. In good times, people have used leverage to achieve great financial gains. Remember, however, leverage works both ways and so do bridging loans. In other words, instead of staving off the inevitable, bridging loans can accelerate it.

August 24, 2007
copyright 2007 complete books publishing, inc.

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