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If you’re thinking about getting a Home Equity Line of Credit (HELOC), you might wonder if it will affect your property taxes.
Let’s break it down in simple terms.
What is a HELOC?
A HELOC is a type of loan that uses your home as collateral. It lets you borrow money against the equity in your home. Equity is the difference between your home’s current market value and the amount you still owe on your mortgage.
How Do Property Taxes Work?
Property taxes are based on the assessed value of your home, determined by your local tax assessor. This assessed value works like an annual estimate of your home’s worth. Your tax bill is calculated by applying the local tax rate to this value.
Does a HELOC Impact Property Taxes?
Here’s the key point: taking out a HELOC does not directly affect your property taxes.
When you apply for a HELOC, most lenders require an appraisal to check your home’s current market value. However, this lender’s appraisal doesn’t change the assessed value your local tax office uses for your property taxes.
When Can a HELOC Indirectly Affect Property Taxes?
A HELOC could affect your property taxes if you use the money to make big improvements to your home. For example:
- Adding a new room or wing to your house
- Renovating your kitchen or bathroom
These upgrades may cause the tax assessor to re-evaluate your home’s value. If they decide your home is now worth more, your assessed value could go up — and so might your property taxes.
Tax Deductions and HELOCs
While a HELOC doesn’t change your property tax bill, there’s one financial benefit you should know about.
The interest you pay on a HELOC might be tax-deductible if you use the money to buy, build, or improve the home that secures the loan. This deduction doesn’t lower your property tax, but it could help you at tax time.
Errors and omissions are regretted.
