Consumption and Real Estate
As the tax deductible donations to charities and home equity loans?
When they say donations and home equity loans are tax deductible, what does this mean? Is a $ 1,000 donation means $ 1,000 less income tax? Is $ 1,000 in interest on a Home Equity Loan paid $ 1000 less income tax mean?
No, these become part of your Itemized Deductions if you plan to itemize. The Itemized Deductions reduce your taxable income, which in turn decreases the amount of tax you would owe.
For example (all hypothetical numbers), if your gross income 20,000 and your itemized deductions are 6,000, then your taxable income becomes 14,000. And the tax is calculated off 14,000. (Of course there is still an exemption to account for, but that’s not what we are talking about).
Tax credits reduce your amount of tax directly. Deductions reduce your income. I hope this all makes sense.