This was published by the Asbury Park Press on May 28, 2006.
John F. Wasik reports that borrowing against your home's equity is not a good idea. "You may complicate both your tax and retirement situations if you make the wrong move." This is due to the alternative minimum tax. A conventional loan may be best.
Of course, no loan at all is best, but the conventional news media never admit this.
Before borrowing against your home, consult your tax adviser.
Do not sign up for a variable-rate mortgage, the author wisely suggests.
John Pearson, a certified public accountant and college planning specialist in Norwalk, Conn., says people borrowing against their home often ignore the tax consequences.One big disadvantage is that home-equity-loan interest isn't tax deductible if you are subject to the AMT and if proceeds from the loan are used for college payments "and for any other reason other than home acquisition or improvement," Pearson says.
Even if you aren't subject to the tax, there's also a $100,000 limit on deductibility of interest if home improvement isn't the reason for the loan.
Pearson suggests that if you're obliged to pay the AMT, ask your tax planner to "reclassify the mortgage interest into student-loan interest" by making a special election on your return.
Because of the alternative minimum tax, there are problems with writing off interest on college loans.
If your adjusted household income is less than $135,000 and you are married, filing jointly, then you may be able to write off all or part of the interest. For singles or heads of households, the income limit is $65,000.In either case, you can deduct no more than $2,500 per year. You don't need to itemize on Schedule A to do this -- if you qualify.
If your home is your main equity, don't borrow against it, Pearson says. I agree entirely.
Of course, I don't think you should borrow at all. That's why I wrote my manual:
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