Equity Home Loans

Want to combine 2 home equity loans - how to claim on taxes.?

I am considering combining 2 home equity loans. At the moment I can claim the interest paid on 1 of the loans as it was for home renovation, but not the other, because it was better to take the standard deduction under personal expenses. I rent my house out, and need to know if I will still be able to claim interest for my taxes on the $ used for original home renovation. We are in the military and stationed in Japan. We rent our house out in FL. I took out a home equity loan when we first moved into our FL house, and because it was for renovations, I am able to claim this under the rental expenses. The 2nd home equity loan was taken out to consolidate debt, as it is easier to make one payment while in Japan. We have equity in our house still. I want to consolidate is because we are going to be stationed in VA, and as we don't want to sell our FL house and don't want to rent we are going to try and buy a 2nd house. If I consolidate these 2 loans it frees up $400 for 2nd mortgage.

Public Comments

1. You can still claim a portion of the interest on your new home equity loan as a rental expense, and you can also claim the interest on your new mortgage as an itemized deduction. Use any reasonable method to allocate the interest on the new, combined home equity loan between your rental expenses and your personal debt consolidation. For example, if you combine your home equity loan for renovations ($35k) and your consolidation loan ($15k), then you can probably take 70% (35 / (35+15)) of the interest on your new loan as a rental expense.
2. Once you converted the home to rental, all interest expense from that point forward becomes rental expense. What you used the proceeds for is not relevant. Deduct on Sch E
3. First, let's look at the tax characterization of the two loans. Your home equity loan taken out for home renovation is considered an "acquisition loan", is deductible (together with your mortgage, if any) up to a $1,000,000 balance. It remains deductible against rental income after you move and rent out the home. Your other loan remains a home equity loan, is deductible up to a $100,000 balance as long as you live in the home, and is not deductible against rental income. You probably should have claimed it. It's not too late for tax years 2004-2007, and possibly longer, because of military extensions. Now, as for allocation, if you refinance, the new loan should be allocated to the property according to the relative balances of the two loans, and that fraction of the interest should be deductible. For example, if your home renovation loan balance is $40,000 at the time of refinance, and your other home equity loan balance is $20,000, then 2/3 of the interest will be deductible.
4. If you are a first time borrower of a home equity loan it is imperative that you have a checklist of essential questions that you need to ask each and every lender. The answers to these questions will provide a valuable reference to base your comparisons on. What’s the interest rate? Knowing this is crucial. The interest rate will determine<!--the monthly payment you will need to make. You also need to know if the interest rate is of a fixed or adjustable nature. Fixed rate implies that the monthly payments will remain constant, while an adjustable rate implies that rates will fluctuate depending on market conditions. http://best-loans.awardspace.com/homeloans.htm In adjustable rate, when will rates change? If your interest rate on the home equity loan is of the adjustable variety, you need to know three things: when the rate is going to change (that is under what conditions), how frequently will the rate change and what’s the average-->percentage by which the adjustable rate will change. What is the Annual Percentage Rate or APR? The APR on the home equity loan will determine the yearly payment you will need to make towards this.The higher the payment in terms of points, the lower is the interest rate.