Interest on consumer loans is not deductible, but you can use a home equity line-of-credit mortgage to pay off existing consumer debts and finance future consumer expenses. However, although interest on a home equity loan is fully deductible for regular tax purposes, if within the $100,000 limit, the interest is not deductible for purposes of Alternative Minimum Tax, unless the loan proceeds were used to improve your first or second home.
Specific Details
The taxpayer reduced their taxable income by $5,000 by using a home equity loan to pay consumer debts and claiming a home equity interest expense. Since the taxpayers income was taxed at the 30% tax bracket, the income reduction may decrease their income taxes by $1,500 ($5,000 x 30%).
Potential Savings
You should consider using a home equity loan to pay consumer debts and claiming a home equity interest expense.