Category Archives: Home Improvement Financing Law

Changes in the laws about home improvement loans

Home Improvements Loans Can Lead to Big Tax Deductions

Posted on by JT Miller

You may be able to reduce your income taxes by taking out a loan to cover some much needed home improvements. Not all home improvements qualify for a tax deduction or tax credit, but in certain kinds of home improvements can decrease your taxes not just for the calendar year in which you finish the project, but also for years to come.

Home Improvements and Home Improvements Loans Can Lead to Big Tax DeductionsIf you are required to perform a home improvement project or remodel part of your home to accommodate a medical condition then all or part of the cost of that project may serve as a tax deduction, which means you can reduce that amount from your taxable income for the year.

If, for example, someone in your home is suddenly confined to a wheelchair you may be able to deduct the amount it takes to install an elevator, lower kitchen cabinets or simply widen doorways in your home. Only certain home improvements related to medical costs apply, and you may need the written statement of a doctor or medical professional.

Likewise, the latest Stimulus Package has added tax credits to the 2009 and 2010 calendar years for certain energy saving home improvements including installing new energy efficient windows, doors, certain types of roofs, heating and air conditioning units. You can use up to 30% of the cost of any project as a tax credit, with a total of up to $1,500.

For example, installing $6,000 worth of solar panels on your home may qualify you for the maximum $1,500 tax credit at the end of the year. In addition, some states and even some utility companies offer additional money-saving and tax incentives for making your home more energy efficient.

Obviously, not all home improvements are eligible for a tax deduction. You should talk to an income tax professional or research some of the details surrounding home improvement tax deductions before you embark on any home upgrade or remodeling project.

You obviously may not be able to afford all of these projects without borrowing some money, but even certain home improvement loans can lower your taxes if the money is borrowed against the mortgage or equity in your home.

If you take out a home equity loan specifically for home improvements you can often use the interest you pay on the loan as a tax deduction. This is an option that is available with only certain types of home improvement loans. Each year the loan is open and you pay interest on the loan is another year you can deduct that interest amount from your taxable income in some cases.

Again, before you perform any home improvement or apply for any type of home improvement loan for tax reasons you should definitely speak with a qualified tax accountant to make sure your home improvement plans and loans are going to follow the letter of the law and be eligible for the greatest tax deductions or tax credits.

Pay Off Your Home Improvement Loan With A Tax Refund

Posted on by JT Miller

It is estimated that over 70% of all Americans get an income tax refund each year due to overpaying their income taxes on salaries, paychecks and other forms of income throughout the calendar year, and that money can go a long way towards paying off any existing home improvement loans you may have. And while loaning the government extra money is generally not a great way to get rich, there is an undeniable feeling of satisfaction in getting a large tax-free check from the government each spring!

An Outstanding Home Improvement Loan May Affect Your Income TaxesOne of the best ways to use that money effectively is to pay down an outstanding home improvement loan that you may have opened in the previous year.  Here’s how this might work:

Let’s say in 2008 you applied for a home equity loan to perform add an addition on your house or to improve your home.  For the sake of argument we’ll say that you took out a $10,000 home improvement loan in early 2008.  This home upgrade will probably increase the value of your home which may allow you to borrow money for more home improvements in the future.

As the work on your home progresses and as you pay off your loan you are also paying some interest on the monthly loan payment.  The interest might be around 6%.  The interest that you pay on your home improvement loan in 2008 can often be used as a deduction on your 2008 income tax.  So if you paid $500 in interest then in many cases you can deduct that from your gross 2008 income, which ultimately means you get a larger tax refund for 2008.

In 2009 you can then use your income tax refund to help pay down your home improvement loan, effectively getting rid of some of your debt.  By taking out a loan for a home improvement in one year and using the tax refund from the next year to help pay it off you can sometimes afford to continually be improving your home while reducing the income taxes you owe and increasing the equity in your home.

Most home improvements cannot be used as a tax credit, but there are some exceptions to this, especially when it comes to home upgrades that are needed for a medical condition or for special energy saving home improvement project.  Generally the interest paid on a home improvement loan or line of credit can be deducted from your income for tax purposes as long as the money is indeed used to improve your house.

Obviously, every tax and income situation is different and you may want to consult with a qualified tax professional to make sure this method of paying down home improvement loans will work for you.

How the Federal Reserve Rate Affects Your Home Improvement Loan

Posted on by JT Miller

If you’ve ever looked into getting any sort of loan for a mortgage or home improvement project you’ve probably heard talk about the Federal Reserve rate and how you may want to wait or move at a specific moment. But what does all this really mean? How can some big government institution like the Federal Reserve actually affect the rate of a home remodeling loan that you might apply for?

federal reserve home improvement rateThe Federal Reserve Board is government organization which does a number of important things, but one of the most high-profile monetary tasks of the Federal Reserve is to, in it’s words:

Open market operations–purchases and sales of U.S. Treasury and federal agency securities–are the Federal Reserve’s principal tool for implementing monetary policy… The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

Essentially, the Federal Reserve controls the rate at which banks and other lending institutions can borrow money themselves. Banks and other financial institutions that lend money for mortgages, home equity, and home improvement loans can then adjust the loans they sell up or down so that they can still make money.

Here’s an over-simplified example: if a bank can borrow $10,000 at 4.00% interest then they might be willing to offer you a $10,000 loan for a home remodel at 6.00% interest. As you repay the loan at 6.00% the bank would take the extra you paid, keep it as profit, and pay back the 4.00% on the loan. Essentially, the bank you borrowed money from is like a retail store with money: it “buys” money at 4.00% and it sells it to you at 6.00%.

This means that when the Federal Reserve rate is low you, as a home owning consumer, usually get better mortgage, home equity and home improvement loan rates. Of course, banks also have to worry about other things like loan default rates, paying employees, other market investments it may have and a variety of other things, so the rate at which they offer a home remodeling loan may fluctuate a fair bit from one day to the next.

Generally, when the Federal Reserve Board lowers rates most consumer loan rates, including home equity and home improvement loan rates, drop down a little bit. Likewise, when the Federal Reserve Board raises rates, loan rates go up.

Right now the Federal Reserve rate is at a historic low, which is just one of the many reasons why it’s a good time to get a home improvement loan.

It’s also important to note that the change in rates is not always immediate. Most experts in the financial industry say that it takes at least a week or two for banks to begin properly adjusting their rates and gauging market conditions before you may see the rates on things like mortgages and home improvement loans go up or down.

Obviously, your credit score, income and current home value will also play a part in whether or not you can get a good rate on a home improvement loan. The best way to find out more is to use a free home improvement loan calculator that can give you all the rates and details that apply to your specific financial circumstances.