Some of the new tax laws still allow for deductions on some of the interest you pay each month for your debts.
So it is important to manage your debt wisely.
Here are some tips for you as to which debt interest can benefit you when it comes to taxes.
Home-Mortgage Interest You may deduct interest of up to $1 million worth of mortgages used to acquire or improve your main personal residence or one additional home.
However, any mortgage interest on a third home is non-deductible.
Also if you earn high income there are restrictions to mortgage-interest deductions and there could be a reduction of deduction allowed.
For example for 2009 if your adjusted gross income is more than $166,800 you may have to reduce your mortgage interest deduction by about 25%.
Home Equity Loan Interest You may claim an itemized deduction for interest on up to $100,000 of home-equity loans.
The $100,000 figure is in addition to the $1 million limit for home mortgage interest deduction.
Keep in mind, interest on home equity loan is deductible for alternative minimum tax (AMT) purposes only if you use the loan tor improve a first or second residence.
So if you are in the AMT mode, you may not get any tax benefit if the proceeds were used for other purposes such as buying a car or medical expenses.
However, if you used the proceeds to improve or construct in your first or second home, you can deduct the interest under both the regular tax and AMT rules.
However the total of your loans may not exceed the fair market value of your home.
So if the total of your loans are higher than the fair market value of your property then you will only be able to deduct on loans up to the fair market value.
How about vacation homes? If your vacation home is your second home you may be able to deduct the interest but if you are renting your vacation property then you should look into IRS rules for rented vacation property.
Investment Interest If you borrow money to buy taxable investment assets then your interest is investment -interest expense and you may deduct this investment interest up to your investment income limit.
For investment interest, complete IRS Form 4952 (Investment Interest Expense Deduction).
Remember if you invest in non-taxable investment such municipal bonds then the interest is not deductible.
Interest on Car Loans, Credit Cards and Other 'Consumer Debt' These types of interest in general are no longer deductible, unless they are related to a business.
See IRS documentation for more details.
Business Interest Generally any interest used in business to generate income/revenue is deductible.