How to Make a New Car Tax Deductible Using a Home Equity Loan
If you own a home and you're thinking about a new car purchase, I have a suggestion that few car salesmen will tell you: Your car can actually be tax deductible--if you play your cards right! Homeowners capable of obtaining a home equity loan or home equity line of credit (HELOC) will find that the interest on that loan will likely be tax deductible. This can save you thousands over the term of the loan in taxes, and possibly lower your interest rate as well.
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Instructions
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Locate a car you wish to purchase. Both new and pre-owned automobiles are acceptable.
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Contact a minimum of three different lending institutions and inform them you wish to apply for a home equity loan. A home equity line of credit (HELOC) would also be acceptable as they are used in much the same fashion as a home equity loan. Negotiating with three or more lenders will allow you to pick from the best offer, and possibly play each lender off one another to negotiate for better rates.
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Choose the loan with the lowest rate, or the one that fits your particular lending needs.
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Begin negotiations with the car dealership you wish to buy from. To aid in the negotiation process, inform the salesperson you are capable of paying cash immediately. This will give you increased bargaining power and far better service from the sales staff.
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Purchase your car when you find a deal that is agreeable with you.
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When you file your taxes, simply take the amount of interest paid on the home equity loan and deduct them as you would your primary mortgage.
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Tips & Warnings
Tax law changes frequently, so you should check the tax code before relying on any tax deduction. If you are not knowledgeable in this field, consult with a financial professional such as an accountant or a tax service business such as H&R Block.
The mortgage crisis of 2007 has presented a great opportunity for well-qualified borrowers, so many banks will beg for your business if you are an average negotiator.
Not everyone will qualify for a home equity loan, so it is best to do some homework first. IRS Publication 936 will inform you of the details and regulations (see Resources below).
Remember that this loan is backed by the equity in your home, so if you can't repay the loan your home may be in danger.
