Question : How tax deductible are charitable donations and home equity loans?
When they say donations and home equity loans are tax deductible, what does this mean? Does a $1000 donation mean $1000 less federal income tax? Does $1000 paid in interest on a home equity loan mean $1000 less federal income tax?
- asked by djchuang
All Answers:
Answer #1
The deductible is to the amount the tax percentageis applied to. So if you make $50,000, you candeduct $1,000 to make your base $49,000. And then15% is applied to the new base.This is a verybasic explanation - a lot more goes into it. Butthis should give you an idea.
- answered by LifesAMystery
Answer #2
No.A deductable expense reduces your taxableincome which is used to calculate the tax.Forexample: If you are in the 25% bracket, a $1000donation (or home loan interest) would save you$250 in taxes ($1000 x 25%).
- answered by Wayne Z
Answer #3
No, these become part of your Itemized Deductionsif you plan to itemize. The Itemized Deductionsreduce your taxable income, which in turndecreases the amount of tax you would owe. Forexample (all hypothetical numbers), if your grossincome 20,000 and your itemized deductions are6,000, then your taxable income becomes 14,000. And the tax is calculated off 14,000. (Of coursethere is still an exemption to account for, butthat's not what we are talking about). Taxcredits reduce your amount of tax directly. Deductions reduce your income. I hope this allmakes sense.
- answered by Kristy
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