The interests charged are significantly higher because they are not the regulated ones but punishment ones (fines) instead because the law seems to understand that tax debt affects all the society. Also, the processes to recover the money owed are shorter and more expeditious and thus, tax debt needs to be resolved in a speedy manner with great risks of losing assets if not.The problem is that money isn’t always there and though the smarter thing to do is to pay taxes when they are due and avoid debt accumulation, once it has already happened some sort of alternative needs to be used. A not so uncommon practice is to resort to debt consolidation loans. These loans are useful because they charge low interests, because other creditors can be included too and thus all debt is unified but there is also another reason that is especially important when it comes to tax debt elimination. Interests On Debt Consolidation Loans Based On Equity Are Tax Deductible The interests on a home equity loan (most debt consolidation loans are based on equity), are tax deductible. That means that all the interests on the loan you take to pay off your tax debt and other debts can be taken away from your tax payments on the following period. This implies either great savings or it can be viewed as a further reduction on the interest rate paid for the new loan. Thus, you would be exchanging expensive debt for an even cheaper consolidation loan.Other debt that is not tax deductible and usually charges higher interest rates are: car loans, motorcycle loans, other vehicle loans, credit card debt, store card debt, payday loans, cash advance loans, unsecured personal loans, etc. Therefore, it is a good idea to take into account all this debt when deciding the loan amount of your consolidation loan. Some Restrictions May Apply It is possible to deduct the interests on a consolidation loan of up to $100,000. This limitation applies both to a single loan or a combination of loans. For instance: If you have a property worth $200,000 with an outstanding mortgage debt of $40,000, you would be able to obtain a home equity loan of up to $160,000 and use it for consolidation. However, you would only be able to deduct the interests on the first $100,000.But you could also have two properties, worth $150,000 and $50,000 each with a combined mortgage debt of $40,000 and the solution would be exactly the same. The only difference might be the need to request two separate home equity loans instead of a single one. But you would still be able to deduct the interests on up to $100,000 of the combined new debt.Also, bear in mind that this ability to deduct the interests on a home equity loan used for consolidation, applies only to the part of the loan that is secured with actual home equity. Those loans that finance 125% of the property can only be partially useful. For example: If the property is worth $100,000 but there is a mortgage balance of $50,000 and you manage to obtain a 125% home equity loan for $75,000, only the first $50,000 interests will be deductible even though $75,000 is lower than $100,000. This is due to the fact that the remaining $25,000 is not secured with actual equity.