Welcome Guest. Register Now!  


For 2014 Tax Tips For Year 2014.


Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 10-15-2015, 01:14 PM
Junior Member
 
Join Date: Oct 2015
Posts: 1
taking out home equity loan‏ to pay down student loan

Hi all.

I did the following rough calculation on the potential benefits of taking out a home equity loan in order to pay down a student loan (of size $113,000). We cannot deduct student loan interest because our household income is too high. So an accountant mentioned the possibility of taking out a home equity loan (HEL) and deducting the interest from that HEL loan.

Assuming a 3.85% HEL interest rate, and a HEL loan of size $113,000, to be paid back over 15 years. Total yearly HEL interest, potentially tax deductible, is about $4,200. Assuming our top income tax rate is 28%, we save $4,200*.28=$1,176 on our taxes.

We are losing about 3.85-2=1.85% in interest rate, since the student loans have a 2% interest rate. A 15-year loan of $113,000 at 1.85% has a yearly payment (int+principal) of $8,628 per year. That is a big loss that largely offsets the tax savings.

Is there anything wrong with my thinking?

Thanks in advance for your input



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 10-16-2015, 01:02 AM
Moderator
 
Join Date: Oct 2010
Posts: 5,258
I did the following rough calculation on the potential benefits of taking out a home equity loan in order to pay down a student loan (of size $113,000). We cannot deduct student loan interest because our household income is too high.==>Correct;to claim it, Your Modified Adjusted Gross Income should be below the upper threshold specified by the IRS.

So an accountant mentioned the possibility of taking out a home equity loan (HEL) and deducting the interest from that HEL loan.

Assuming a 3.85% HEL interest rate, and a HEL loan of size $113,000, to be paid back over 15 years. Total yearly HEL interest, potentially tax deductible, is about $4,200. Assuming our top income tax rate is 28%, we save $4,200*.28=$1,176 on our taxes.===>>Correct.

We are losing about 3.85-2=1.85% in interest rate, since the student loans have a 2% interest rate. A 15-year loan of $113,000 at 1.85% has a yearly payment (int+principal) of $8,628 per year. That is a big loss that largely offsets the tax savings.======>it depends. HEL secured by your main home or a second home qualify for the home mortgage interest deduction. Mortgages include a mortgage to buy your home, a second mortgage, a line of credit or a home equity loan. So, You

need to subtract principal expense from the amt of $8,628.Also asyou can see, aslongas you itemize deductions on Sch A of 1040, you can claim your mortgage loan interest expenses. UNLESS you itemize deductions, you can not claim mortgage interest expenses.

Is there anything wrong with my thinking?====>>As mentioned above.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Will the IRS intercept my tax refund if I claim my adult student child as a dependent if she is in arrears on her federal student loan? rickrice Miscellaneous 1 09-09-2015 05:22 PM
What happens to interest deduction on personal residence home equity loan proceeds which are used to buy a new personal residence? taxpros For 2013 1 04-06-2013 10:32 AM
Should taxpayers use a Home Equity Loan (HELOC) to pay off credit card debt? TaxGuru Itemized Deductions 0 09-08-2009 12:22 AM
Home Equity Loan emc2005 Itemized Deductions 2 03-06-2008 10:34 AM
Are Home Equity loan interest deductible on my personal tax return? Adam Itemized Deductions 1 03-23-2007 11:36 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning
 
 
 

» Recent Tax Q&A
No Threads to Display.