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It turns out that not all loan programs are the same when it comes times to look at your tax situation. Were you aware that when you borrow money you could actually be shrinking the amount of income taxes you have to pay at the end of the year? Some loans may give you a tax credit which shrinks the income tax you owe and other kinds of loans may give you a tax deduction which reduces your gross taxable income. Almost everyone needs to borrow cash sometimes and it makes sense to do your homework before jumping into a big loan. Here’s a quick guide to which loans may qualify you for a tax credit, though obviously individual cases will be different.

School Loans: The interest you pay on many education loans can only be deducted if you make under a certain amount of money, based on your individual filing status. Did you know that many loans you take out for education could give you a tax advantage? You can, in many cases, deduct the interest you paid on the loan from your federal taxes. Not all education loans are eligible for this, but it’s a good way to decrease the taxes you pay, especially if you’re a struggling student with a limited income.

Home Mortgages: For many taxpayers their home is the largest purchase they ever make, and paying a mortgage can actually be a good way to reduce the amount of money you owe on your income taxes each year. Most home mortgages are set up so that you can deduct the amount of interest you pay on the loan every year. Out of all the loans that have tax deductions associated with them, house mortgages are probably the most well-known. Since most home loans are set up to be paid over 30 years, that means that purchasing a house can give you 30 years of potential tax deductions.

Home Equity Loans (HELOC): A home equity loan used to improve your home could eventually raise the value of your house and give you even more equity over time. If your dwelling is more valuable now than when you bought it then you might be able to take out a home equity loan and deduct the interest you pay on that loan. There are some restrictions about how much of your loan’s interest actually qualifies for a tax benefit. You can use a home equity loan for a variety of things, you may be able to get additional tax credits by using the money for house repairs. For some people some of the cost of a HELOC can be balanced out with home repair tax deductions.

There are, of course, a lot of differences between these loans. Everyone will not be eligible for all the different tax credits that these loans may offer. Sometimes your living situation, the amount of money you want to borrow and the reason of the loan will limit the amount of money you can deduct from your taxes in any given year. Before you take out any of these loans you may want to talk with your tax professional to make sure the tax benefits apply to your individual situation. Sometimes applying for the right kind of loan can definitely save you thousands of dollars on your income taxes, so it’s worth spending a little bit of time to look into what sort of tax benefits you are eligible for.

Need to learn more about the details of home loans? Visit our site to learn more about how to modify a mortgage, underwater mortgages and the home buyer tax credit extension. This article, Some Loans May Come With Big Tax Deductions has free reprint rights.