Getting your taxes done can be a huge hassle. But while you are doing your taxes, you try to think of every kind of thing you could get a deduction on. Of course, there are several things that are tax deductible.
But you have always wondered if your credit card interest is. Can you really get something back from you taxes by paying all that interest on your taxes?
Sorry, but no. Unfortunately, unlike the interest you pay on your mortgage, your credit card interest is not tax deductible.
But there is a way you can make it tax deductible. Still, there are some risks involved.
Whether or not the risk is worth it is completely up to you. For you are the one who knows your circumstances. If you really want your credit card interest to be tax deductible, here is what you do.
Refinance Your Home
Sound absurd? If you are doing it just to get a tax deduction on your credit card interest, it probably is.
Getting a tax deduction on such a thing would be a small reward with high risk. If it is that important to you though, refinancing your home can make your credit card interest tax deductible, in a way. It is possible for you to refinance your home and transfer the balance on your credit card to your home loan.
That way, you have basically paid off your credit card and do not have to pay interest on it anymore. Now, instead, you have more interest to pay on your home loan, or your mortgage. That kind of interest is in fact tax deductible.
By transferring your credit card balance to your home equity line of credit, you turn the money you owe on your credit card into money that you owe on your home. You will then pay interest only on your mortgage, and that, in fact, is tax deductible.
Warning:
You could lose your home. That sounds a little dramatic, but the chances that you could lose your home increase if you transfer your credit card balance to your home equity line of credit.
Not necessarily just because you refinanced it to get your credit card balance transferred, but because it may take longer for you to pay off your home loan. Because it would take you longer and make your balance bigger, it may be difficult to make monthly payments in full and on time.
In my opinion, refinancing your home to get a tax deduction is definitely not the wisest thing to do. Better chances of keeping your home is way more important than getting money back from the interest you paid on your credit card. To me, the risk is just too big to take.
Having a home loan is enough of a hassle and takes long enough to pay off as it is. If you extend that by refinancing, it increases the risk that you will get your house repossessed. The whole question is, "Is a tax deduction worth that kind of risk?"
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