Many loans may give you a tax credit which shrinks the yearly tax you owe and other kinds of loans may give you a tax deduction which reduces your gross taxable income. Just about everybody wants to borrow cash from time to time and it’s smart to do your research before jumping into a big loan commitment. Were you aware that when you take out a loan you could also be reducing the amount of federal taxes you have to pay to the government? Surprisingly, not all money borrowing programs are equal when it comes times to pay your taxes. Here’s a simple guide to what loans may give you for a tax credit, though obviously individual cases will be different.

Student Loans: The interest you pay on many student loans can only be deducted if you make under a certain amount of money, based on your individual filing status. Did you know that some loans you take out for school could give you a tax advantage? You can, in some cases, deduct the interest you paid on the loan from your federal taxes. Not all education loans are eligible for this, but it’s a good way to reduce the taxes you pay, especially if you’re a cash-strapped student with a limited income.

Home Mortgages: For most people their home is the largest purchase they ever make, and paying a mortgage can actually be a good way to reduce the amount of cash you owe on your federal taxes each year. Most home payment plans are designed so that you can deduct the amount of interest you pay on the loan every year. Out of all the loans that have tax deductions associated with them, house mortgages are probably the most talked about. Since most house loans are designed to be paid over 30 years, that means that buying a house can give you 30 years of possible tax deductions. Home loans are secured loans, which means if you don’t pay them you may have to lose your house if the lending institution forecloses on it.

Home Equity Loans (HELOC): A home equity loan used to improve your house could eventually increase the value of your home and give you even more equity over time. If your home is more valuable now than when you bought it then you might be able to take out a home equity loan and deduct the interest you pay on that borrowed money. There are some restrictions about how much of your loan’s interest actually qualifies for a tax benefit. You can use a home equity loan for a number of things, you may be able to get additional tax credits by using the money for house improvements. For some homeowners part of the cost of a home equity loan can be minimized with a home improvement tax credit.

Sometimes applying for the right kind of loan can literally save you thousands of dollars on your income taxes, so it’s worth spending a little bit of time to look into what sort of tax benefits you qualify for. There are, of course, a lot of variables between these loans. Everyone will not be eligible for all the different tax benefits that these loans may offer. Sometimes your living situation, the amount of money you want to borrow and the reason of the loan will limit the amount of money you can deduct from your taxes in any given year. Before you take out any of these loans you may want to talk with your tax professional to make sure the tax benefits apply to your individual situation.

Need to learn more about the ins and outs of home loans? Visit our site to learn more about how to change a mortgage, underwater mortgages and the home buyer tax credit extension.