[RMFNSKY]

I have look and ask different people but come up with conflicting answers


Talking strictly financial considerations is it better to say get a car loan say for 5 years for about 25k or use a home equity loan and just pay that off.

I have the home equity loan available already up to 75K and any payments on that the interest is tax deductible but the rate would be slightly higher. Say 7% vs 4% for a car loan.


So I guess the question is does the tax advantage of paying on a Home Equity loan make up for the difference in (i.e. lower rate) for a car loan?

 

[Kustomkaps]

My 2¢ is that you are better off getting a loan from a credit union, or other member organization, as you can get between 4% and 6% on a loan that is locked for the 5 years. Most Home Equities are tied to the prime rate which has been raising every couple months. So, if your HE line is at 7.25% now, in June it might raise to 7.5%, etc. I think paying out 3 to 4% more just to have a possible lower rate on your taxes is not a good thing at the moment. My prediction is that the prime should go up about a 1/2 to 3/4 by the end of the year. Tack on that amount to your HE line and divide out the difference between what you can write off verses pay out each month.
Remember, if the rates- for some strange reason, fall, you can always pay off the car loan with the HE line.
Short term item...save your line for something more serious like a new roof or expansion you might need later as it will be harder to get a loan for that than a new car.

 

[java43]

Depends on how much of the tax code and fine print you wish to adhere to...
pretty certain the tax code does not allow interest on a home equity to be deductable if not use for improvements...big discussion on this issue last wekk.
It is being done but not legally...For my money I stay clean with the IRS and go the legal beagle route...call your accountant or have the bank clarify the terms for you. Doesn't seem worth owing back taxes when you're busted..

 

[cerberus]

Ok. Think I've got this one down now.
Hopefully my rezident council is spot checking me.

I would suggest you check with your accountant.

 

[RMFNSKY]

Thanks, the real adavantage I would have with using the home equity is I wouldn't be locked into a certain amout. I could always pay a little this month and a lot next month.


But I think everybody is right go with the lower rate, the prime looks to be going up and up.

 

[Roadstar]

I say the tax advantages may be greater.:cheers:

 

[Kustomkaps]

Thanks, the real adavantage I would have with using the home equity is I wouldn't be locked into a certain amout. I could always pay a little this month and a lot next month.


But I think everybody is right go with the lower rate, the prime looks to be going up and up.

Your credit union works the same way. We have a specific payment amount for each month, but if we pay more than the payment, it comes off the principle without any problems.

 

[FaerieKitty2]

As I've said before, bending IRS rules is not a very smart idea...but to each their own. Home equity loans used for things other than renovations or repairs, the interest is not tax deductable. :banghead: For more information on home equity loans and what interest is deductable on them I strongly recommend everyone visit http://www.irs.gov so that you can make an educated decision on whether or not the risk of getting caught is worthwhile.

 

[skyepilot]

wouldn't having a sky parked out front make the value of your home go up?

 

[Roadstar]

I believe there are not retributions for using equity to purchase vehicles, pay for vacations, consolidate debts, etc.

 

[FaerieKitty2]

You can use it for those things. HOWEVER the big NO NO is deducting the interest on your taxes if you choose to use the loan for anything other than repairs or renovations. Go to the irs website. Look it up. Message me back if you find an article that states otherwise.

 

[Kustomkaps]

wouldn't having a sky parked out front make the value of your home go up?

good point, but explain it to the IRS guy.

 

[FaerieKitty2]

I do taxes EVERY single day at my job...I'm pretty sure I have the rule right on this one.

 

[Roadstar]

^ I'm sorry you have to do that every day.

I deduct more than the interest... I deduct every payment.
But I didn't take a equity loan out.
So every mile and every payment is a deduction for me.
Pretty soon it will be worth more to deduct every gallon of gas vs mile.

 

[FaerieKitty2]

LOL It's ok...I actually enjoy it. Just hope you don't get audited...unless you have a schedule C and are using it 100% for your business cuz you're gonna owe them an arm and leg if they catch you.

 

[GMguy]

Depends on how much of the tax code and fine print you wish to adhere to...
pretty certain the tax code does not allow interest on a home equity to be deductable if not use for improvements...

Probably true. If you're expecting the IRS to catch ANYTHING the least bit out of the way, you'll probably be waiting a long time. Often the IRS people know less about the tax code than the taxpayer, and something like this
wouldn't get caught unless there was an audit, and the normal middle class taxpayer never gets audited - it's a waste of time for the IRS - they only
go after the big taxpayers or sometimes those who are in a good position to
cheat(self employed, store owners, etc.).

 

[Roadstar]

LOL It's ok...I actually enjoy it. Just hope you don't get audited...unless you have a schedule C and are using it 100% for your business cuz you're gonna owe them an arm and leg if they catch you.

No worries... I have my own personal accountant who takes care of the important issues.
every moment of the vehicle use, modification, etc, are for business:thumbs:

Same with almost everything else I'm involved in.
16 years no audits or threats of audit.
Thanks for your concern.:cheers: It is appreciated!

Anyhow, depending upon one's situation... equity can be beneficial as well as a traditional car loan....
Depends on how you juggle numbers.

 

[FaerieKitty2]

Actually the IRS does random audits on middle class tax payers. The chances of that audit being you is probably very slim, but you never know.

 

[Roadstar]

Yes, it is very slim.

Slim to none.:cheers:

 

[seal9]

If you home equity loan is tied to the interest rates you may find your self paying more in the long run if the Fed gos up again. Use the credit Union..you may be better off....Seal9