Benefits of a Home Equity Loan to Start a Home-Based Business
There are a number of common ways homeowners leverage a home equity loan. The borrowed money can be used for traditional renovations (a new kitchen, bathroom, etc.). It can be used to pay off debt that has a greater rate of interest., or be put towards an investment that pays a higher rate of interest. Some households apply it to their child’s post secondary education, while others may use it to make it through a period of time when cash flow is limited. However, a number of entrepreneurial forward thinkers are considering it to start their own business. This can be a great idea, especially if that business will be home based. Below is a breakdown of the benefits of a home equity loan to start a home based business in BC.
3 Advantages of Using a Home Equity Line of Credit (HELOC) to Start a Home Based Business in British Columbia
You Can Deduct HELOC Interest
The biggest concern homeowners have about taking out a HELOC, is the interest they will have to pay on it. However, when using it to start your own home-based business (or any business) the interest payments may be deductible as a business expense. This can balance out the interest risk of taking out a loan.
You Can Still Apply it to Home Renovations
Nearly every homeowner likes the thought of using funds to fund a home renovation, but without the stress of interest payments. With a home equity loan to start a business at home, you can use some or all of the loan to make renovations with tax deductible interest as long as the renovations apply to your business. For example, you could convert an entire room or wing of your home into an office or work studio, designing/decorating it as you see fit. It’s perfectly reasonable to include a bathroom (etc.) remodel into this renovation as long as that space is designated as part of the home office or studio. You can also apply the loan towards exterior upgrades that are necessary to convert a portion of the outside property into more suitable business environment. The latter is especially reasonable if it is necessary to have customers/clients visit the premises. In many suburban communities there are physicians, dentists, lawyers, accountants, and artisans who have converted a significant portion of their interior/exterior accordingly, and have enjoyed the tax benefits.
A Portion of Expenses of Home-Business Upgrades Are Deductible Too
As mentioned above, HELOC interest is tax deducible when using the loan to start a home-based business. However, home renovation expenses (those that apply to the business portion of the home) are also tax deductible. For example, the cost to knock down a wall to free-up space for a large work studio is considered a business expense. So is the cost of HVAC installation, painting, and other enhancements that make the studio more appropriate for work. You’ll need to discuss the percentages with your accountant, but rest assured that a significant portion of the expenses can be written off.
We know that interest rates are not ideal for most people who are considering a HELOC. However, if you have already planned to start a home-based business and have been struggling with funding, a home equity loan makes sense (as long as you have faith in your business). Despite these above-mentioned tax advantages, you should do all that you get to get the best HELOC terms possible. That means working with a mortgage broker who specializes in home equity loans. If you’re located in BC, reach out to Rene Carloni today for a FREE consultation.