Loan & Line of Credit Tax Savings Estimator

Estimate potential tax savings if your loan interest is deductible.

Estimate Potential Tax Savings

Enter the total interest you paid (or expect to pay) in a year that might be deductible.
Your highest tax bracket (combine federal + state if applicable). Consult a tax pro if unsure.

Understanding Tax Deductions for Loan Interest

In certain specific circumstances, the interest you pay on some types of loans might be tax deductible. This means you can subtract the amount of deductible interest from your taxable income, potentially lowering your overall tax bill.

The potential tax saving is calculated based on your Marginal Tax Rate. This is the tax rate applied to your highest layer of income. If deductible interest reduces your taxable income, the savings are generally the amount of the deduction multiplied by your marginal tax rate.

When MIGHT Loan Interest Be Deductible? (Subject to Rules & Limits)

Disclaimer: Tax laws change and have many specific rules. This is NOT exhaustive or definitive advice.

  • Home Mortgage Interest: Generally deductible on primary and secondary residences, up to certain loan amount limits ($750,000 for newer debt, or $1 million for debt incurred before Dec 16, 2017).
  • Home Equity Loan / HELOC Interest: Interest is deductible ONLY IF the loan proceeds were used to "buy, build, or substantially improve" the home that secures the loan, and subject to the overall mortgage debt limits mentioned above. Using a HELOC for other purposes (like debt consolidation, vacations, car purchase) generally makes the interest NOT deductible.
  • Student Loan Interest: A limited amount ($2,500 per return per year as of recent rules) may be deductible, subject to income phase-outs. This is an "above-the-line" deduction, meaning you don't necessarily need to itemize.
  • Investment Interest: Interest paid on loans used to purchase investments might be deductible up to the amount of your net investment income, usually requires itemizing.
  • Business Loan Interest: Interest on loans taken out for legitimate business expenses is typically deductible as a business expense.

Interest on personal loans, auto loans (unless for business use), and credit card debt is generally NOT tax deductible for individuals.

Itemizing vs. Standard Deduction:** To deduct mortgage or HELOC interest, you typically need to itemize your deductions on your tax return. If your total itemized deductions (including state/local taxes up to the limit, medical expenses above the threshold, charitable contributions, and deductible interest) are less than your standard deduction amount, you likely won't benefit from itemizing the interest.

How to Use This Estimator

  1. Determine the **Total Annual Interest Paid** on loans where the interest *might* be deductible based on the rules above (consult your loan statements and a tax professional).
  2. Estimate your **Marginal Tax Rate** (your highest federal tax bracket + state bracket, if applicable). This can be complex; consulting a tax pro is best.
  3. Click "Estimate Savings".
  4. Review the **ESTIMATED** potential savings, keeping the **VERY IMPORTANT DISCLAIMER** in mind.

Crucial Final Reminder: Tax laws are complex and subject to change. Eligibility for deductions depends on many factors specific to your situation. ALWAYS consult with a qualified tax advisor or CPA before claiming any deductions. This calculator is a simplified tool for illustrative purposes only and cannot determine your actual eligibility or tax savings.

Need Financial Guidance?

While we don't offer tax advice, Blue Sky Loans can help with your borrowing needs. Explore our loan products.

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