marisakay

equity line of credit- TAX return question...

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hoping someone knows some info on this subject; you guys are always wonderful!@!@

hello, last yr we got a home equity line of credit to pay off all credit cards..the total was 13,000 and it paid off about 15 small credit cards..the biggest balance was 4000 (MBNA). so now do I need to do anything diff for my tax return? I ask because a few yrs ago when my FIL got equity line, he spent 45,000 and he ended up getting audited, and IRS said he owed more because he had to count that 45,000 as income???

so do we need to that as well??? we got NOTHING from the bank, or credit card companies, saying we had to report...so I am unsure how that works, and do not want to get audtited..thanks for any input?

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Ah geesh...upon further review...I reread the gibberish and my answer is...don't know.

It looks like there are a bunch of tests depending on what you paid for the house originally, how much you owed when you got the LOC, and the color of your eyes....

I don't see anything in that publication that says you have to treat it as income and pay taxes on it...but I've already got a headache from reading it.

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I don't see how a loan could be considered income, it's a debt. You didn't make that money, you're borrowing it. And paying interest on it.

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No way. I've had HELOC many times over the years and it is not income.

What may have confused this is if the money was used to improve the home and its not a primary residence and it generates income. I dont think its counted as income-but the deductibility of interest on the loan becomes suspect.

Just my initial thoughts here... very likely I'm wrong.

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If I'm translating the gibberish properly...I think the actual question is whether the interest on a HELOC can be deducted. And the answer is...if it was used to pay off credit cards...NO.

The money borrowed is not income (in the sense that you have to pay taxes on it) but its "Home Equity Debt" ...and, depending on what that is used for, may not have deductible interest.

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I'm not sure-but I didn't think that what you used the money for mattered. It was the type of home (primary, etc) the loan was placed against that determined the deductibility of the loan interest.

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I'm not sure-but I didn't think that what you used the money for mattered. It was the type of home (primary, etc) the loan was placed against that determined the deductibility of the loan interest.

I'm not certain either. From reading the IRS publication I cited above, it does appear to me that usage needs to be considered. They keep referring to "Home Equity Debt" and they say its interest "may" be deductible if it was used to improve the property...otherwise, it implies you can't deduct the interest. There are also dollar limits as to the value of the property and the amount of the debt. Like I said, my head hurts...

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Turbo tax never asks what you used the money for-only the amounts and if the home is your primary residence or not.

:dunno:

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Well, here's the gibberish directly from the gibberish generators...

I took out a home equity loan to pay off personal debts. Is this interest deductible? Where do I enter this amount on my tax return?

A loan taken out for reasons other than to buy, build, or substantially improve your home, such as to pay off personal debts may qualify as home equity debt. The interest would be deducted on Form 1040, Schedule A (PDF), Itemized Deductions. The amount you can deduct as interest on home equity debt is subject to certain limitations. For more information, refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 505, Interest Expense.

So...the answer is...maybe...

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I think it is the same limitation that are placed on regular mortgage interest...

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I honestly don't know. The calculation towards the end of Publication whatever does seem to imply that any amount over and above what you originally paid for the place might be considered income.

(Thank you again, Republicans).

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Hey now.... thats not fair... thats political

It should say (Thank you stupid American voters)

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Right...but since I don't vote, I can't complain...

and since I vote in Florida I dont count!

xdancex

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Here's the skinny on it...

You can take a home loan out against your equity. It is not considered income, however "technically" if you borrow against your equity, it's supposed to be used for home improvements only, HOWEVER, I think that the Fed knows pretty darn well that if they enforced that rule, the economy would hit the crapper big time, because people do use their equity loans and HELOC's to pay off bills, take vacations, and make other investments, etc..

Having said that, the loan is not income, nor is the loan deductible. When you repay the loan to the bank, the interest on the loan is tax deductible, same as it is your primary loan.

This is all of course, if the equity that you're borrowing against is your primary residence.

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thanks all for the input, as for my FIL , he got scared and just paid the IRS the diff, since he was "supposed to count as income" it put him the next bracket and he owed 1000...I think what got him was that he paid off 2 BIG credit cards and also fixed up his house (new roof, windows, garage doors, etc)..I think they just saw that BIG cc PAY OFF and was like "um where did that money come from????"

that is what I am afraid of for us, I feel like paying an accountant but I always do our tazes on turbotax because it is sooo easy!! all we have is DH's income, and last yr he had unemplyment comp (form 1099 G), and we have 2 dependents, so it is so easy to do...I am just afraid I am missing something w this EQUITY LINE OF CREDIT....unlike FIL , we did NOT get any forms from CC's saying thay reported to IRS payoffs...so do I even have to mention the euity line anywhere on taxes??

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Another thought-Did your FIL have any of those debts written off? Because if he did-and didn't count THAT as income-the IRS would have found that out in a heartbeat.

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The interest on a HELOC is deductible to the limit of fair market value of the home. It should also be your primary residence. There are several HELOC programs which will extend your credit up to 125% of the market value of the home. In these instances, the excess over 100% would not be deductible. It really does not matter what you use the money on.

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Another thought-Did your FIL have any of those debts written off? Because if he did-and didn't count THAT as income-the IRS would have found that out in a heartbeat.

he did settle w them, since the cc's were already delinquent, he settled for like 9000 instead of 15000...

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he did settle w them, since the cc's were already delinquent, he settled for like 9000 instead of 15000...

Well there you go... that 6000 that was written off is 100% taxable income. He should have gotten a 1099 for it and it needed to be added as income to his return. The IRS would have known about it and smacked him for interest and penalties on that.

And if nobody has any complaints-I'm going to move this entire thread to the Debt Settlement forum since that is now what it has turned out to be!

:)

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thanks , u are SO RIGHT!!!! right after I typed that I remembered that AFTER January 31, he got 2 forms from these CC's, after his taxes were already done, he should have amended them...so that was his fault for sure...

so since WE DID NOT settle w any cc/s, simply piad them off in goodstanding, there are no special forms correct?? thanks so much

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Well, so far the best thing is to ask any country revenues staff or officer for this matter. If it would be deductible somehow only the interest for the that`s partly affects the improvements. But the best is to inquire and have your things concern be brought up.

Thanks for this info`s. More shared ideas; much better.

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