Did you know that when you borrow money you could also be reducing the amount of federal taxes you have to pay to the government? Surprisingly, not all money borrowing programs are the same when it comes times to look at your tax situation. Almost everybody needs to borrow cash from time to time and it makes sense to do your homework before jumping into a big loan. Some loans can give you a tax credit which shrinks the tax you owe and other types of loans can give you a tax deduction which reduces your taxable income. Here's a quick guide to which loans may qualify you for a tax deduction, though obviously everyone's tax situation will be different.

Student Loans: The interest you pay on most student loans can only be deducted if you make under a certain amount of money, based on how you file your taxes. Did you know that some loans you take out for school 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 reduce the taxes you pay, especially if you're a cash-strapped student with a limited income.

Home Mortgages: For most people their home is the largest purchase they ever make, and paying a mortgage can actually be a good way to reduce the amount of cash you owe on your federal taxes each year. Most home loans are designed 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, home mortgages are probably the most talked about. Since most home mortgages are set up to be paid over thirty years, that means that purchasing a house can give you 30 years of potential tax benefits.

Home Equity Loans: If your home is more valuable now than when you bought it then you might be able to take out a home equity loan (sometimes called a HELOC) 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 number of things, you may be able to get additional tax credits by using the money for home repairs. In some case you can even qualify for tax savings for using the money to improve your home's energy efficiency. A home equity loan used to improve your home could eventually increase the value of your house and give you even more equity in the long run. For many homeowners some of the cost of a home equity loan can be offset with home repair tax credits.

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 and energy to look into what sort of tax benefits you are eligible for. 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 income, the amount of money you want to borrow and the purpose of the loan will limit the amount of money you can deduct from your taxes in any given year. Before you apply for any of these loans you may want to speak with your tax professional to make sure the tax benefits apply to your individual situation.

Want to learn more about the ins and outs of home loans? Visit our site to learn more about how to modify a home loan, underwater mortgages and the home buyer tax credit extension.