|Written by Steve Schwettman|
Before the process of building my garage could begin, I needed to think about where the money was going to come from to build it. This would help me come up with a number for my actual budget. At this point I didn't really know how much it would cost, but I figured I should have about $20,000 handy just to be safe.
Tapping into savings...
We have several sources of savings. We have a money market savings account with some cash in it. We have a taxable brokerage account with investments that are steadily earning money either for retirement or other needs such as our future child's education. We also have IRAs and employer-sponsored retirement plans, but I knew those were an absolute last resort due to the hefty penalties involved in cashing those in. In the end, I didn't like the idea of using any of these funding sources for building this garage.
I know it was a different time back then compared to today, but at the time I figured it was worth calling the bank that we obtained our mortgage from, just to see what our home equity options were. The benefits of tapping home equity were that we could leave our current investments in place, get a low-interest loan, and the interest on whatever amount we used to improve our home was tax deductible. We found that we qualified for a home equity line of credit well in excess of our needs, and we were able to get all fees waived, so we decided to go that route.
If you are using a Home Equity Line of Credit for purposes of home renovation, the interest is tax deductible. But in order to claim the deduction, you MUST have an accurate paper trail of home renovation expenses being paid directly from the HELOC. This means you should make sure your HELOC comes with both a checkbook and a credit card, so that any expenses can be paid directly from the loan without transferring money into other accounts.