When analyzing their financing options or debt handling issues, many people neglect to include the tax implications of one strategy over another. While calculating and including the tax implications in your scenarios can become very complicated, the benefit from doing so can clarify which decision is most beneficial to your own situation. The level of complexity in these calculations is also reduced greatly by the plethora of computer programs that are available to help you. Even without a computer, there are a few simple guidelines to keep in mind.


In the U.S., the biggest tax write-off for many individuals is the interest paid on a property loan. Since they represent large debts paid over many years, the interest is the overwhelming majority of the total monthly payment, at least for the first several years. As a result, much of that interest paid can offset taxable income and make a real difference in the amount you have to pay when April comes around.

But there are other tax issues involved with other forms of debt that should be factored into planning. Home equity debt is only one option, even without a home you have other loan options besides using your high interest credit cards.

Taking out a home equity loan used to be primarily for the purpose of making improvements to the property. Many people these days use that money for a much wider variety of goals. A HELOC (Home Equity Line of Credit) can be used to finance just about anything - an auto purchase, repayment of credit card debt, you name it. Once you have the HELOC, the money is mostly yours to do with as you wish.

One advantage of this home equity type of debt is precisely the tax benefit. Just as with a primary loan, interest on a second mortgage or a HELOC is tax deductible. So, even when the interest rate is the same as a credit card (and they are often much lower), the net result can be beneficial as you’ll be able to write off the interest on your taxes.

The only way to know for sure in your circumstances is to do the calculations. Online loan calculators are readily available that will help you do just that. Run through several scenarios to decide the effect in your case. Your income, debt-to-equity ratio, credit scores, etc will all impact the potential benefit you’ll get from using home equity loans versus other types of debt.


It is possible to obtain a loan to pay for large medical costs. Some people pay for such things with a credit card, which is possibly the most expensive way to finance the debt. Sometimes that’s necessary, no one size fits all recommendation is possible, but you should carefully research your options before paying for any large expenses with credit card debt.

Since much of the interest on medical loans, and sometimes the medical expenses themselves, is tax deductible it can be worthwhile to finance the costs that way.

Interest on or amount paid to student loans, too, is tax deductible up to a point. Your circumstances will vary, again, based on income, years out of school, amount of debt, etc. Tax filing software is probably your best bet for calculating the pros and cons in your individual case. As you answer the ‘interview questions’ you can put in the amounts and follow the tutorial to determine the impact. Feel free to even use last years edition of the software if you have it, it’ll likely be close enough to give you a ball park estimate of the benefit of one approach over another.

Regardless of the specific situation, whenever you are considering assuming debt, especially for large amounts, taking the time to evaluate the tax implications can save you substantial amounts of money. The amount you save can easily be worth a couple of extra hours of research, especially since you’ll be able to use that knowledge time and time again. Checking out a basic “Taxes for Dummies” book from your local library or purchasing a basic how-to book off Amazon.com can serve as a lasting resource for considering the tax implications of various types of debt. If you find that you are unable to find software or resources to do the basic calculations that you need and you don’t have the time to read up on the subject on your own, try contacting a certified public accountant to see how much they would charge for a basic consultation. They’ll often offer you free advice or a reduced rate, with the hope of you using them in the future for additional help.