When I have a home equity loan and I deduct the interest, do I get this money back on my taxes?

Question

I mean I know you can deduct the interest. What I don't understand is when you get your tax refund, will this just be a percentage of the refund or will you see the money come back dollar for dollar that you can then use to make a bulk payment on the loan?

Answer 1

You DO NOT get the money back dollar for dollar.

Basically what you are saying is that if you deduct $1000, then that portion of your income should not have been taxed. So if your checks are usually $1000, look and see how much in taxes you paid on that one check. That's how much you get back.

Say you make $35,000 a year, and you paid $10,000 in interest and property taxes. You should have only paid income tax as though you made $25,000, so you are refunded the difference.

Keep in mind that there is a 'standard' deduction amount that you must EXCEED before you get any portion back. So if you only paid $2500 in interest it might not make a difference at all in your return.

Answer 2

You cna deduct interest on a home equity loan of no more than $100,000. It is an itemized deduction on schedule A. You cash benefit will be your tax rate times the dollar amount of interest you pay. So, if you were in the top federal bracket and paid $10,000 of interest in a year you would benefit by paying $3,500 less federal tax that year. You can either wait and get a refund when you file your return or you can adjust your withholding exemptions and get a larger take home check

Answer 3

The amount is based on your marginal tax rate. Most middle-class are in the 28% bracket. So, you would get back about 28% assuming you itemize on your Schedule A.

Answer 4

Deductions are made from your gross income, so you wind up with a smaller taxable amount. You don't get the actual amount back.

Answer 5

Just a percentage credit I believe - don't get back dollar for dollar