Discussion:Acquisition debt over 1M
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Discussion Forum Index --> Tax Questions --> Acquisition debt over 1M
| 18 March 2007 | |
| I have a client that has borrowed over 1M to originally purchase his home. The worksheet to figure the qulified loan limit allows 1,100,000 as a qualified loan limit. I have no problem with this and understand that he cannot deduct all of his interest. When I get to the AMT where I have to add back equity mortgage do I have to add back the amount that is representative of the 100,000? I hope I am making myself clear. The entire mortgage was to originally build the home. I am capped at 1K plus 100,000 equity. That interest representative of the 100,000, does that get added back? | |
| 18 March 2007 | |
| I think that what is bothering me is that the 1,100,000 that the, " worksheet for qualified loan limit and deductible home mortgage interest" is allowing for my client is all to originally purchase the home. None of this is equity loan. I am of the opinion that I do not have to add back anything for AMT. I consider this as all ELIGIBLE mortgage. What this worksheet is allowing for schedule A, I am allowing for amt because there is no equity interest. Can anyone follow my thinking? Please advise if I am way off. I appreciate your help and comments. | |
| 18 March 2007 | |
| Still looking for some help. I researched the forum and found some very interesting conversations about interest over lM. But, I have not seen anyone address the amt add back side of this.
The interest, again is acquisition debt and the worksheet is allowing 1,100,000. I need some expert help here. You are only required to add back equity mortg. and this is acquisition. Acquisition that the IRS worksheet is allowing. | |
| 18 March 2007 | |
| Bell, just my opinion, but when the treatment of the home equity portion is utterly unclear (see discussion in Alamanac that included Pau, a Tax Court case. There was also an FSA, 200137033. Both said that home equity debt used for acquiring the home did not generate deductible interest) for regular tax, it is even more unclear for AMT. I am aware that the Pub allows for the full deduction for regular tax. It is interesting - it is as though the IRS forgot that these earlier items did not allow the deduction. If Pau and the FSA are correct, and the interest is not deductible, then it would not make any sense for it to be allowed for AMT. If both the case and the FSA are simply wrong, and the interest is deductible for regular tax, then you address the AMT. Check out 56(b)(1)(C). | |
| 18 March 2007 | |
| Thanks Jad:
I read through all the articles and all you read is that acquisition debt is limited to 1m and equity debt is 1k..period... So, if I follow the IRS worksheet, I am allowing an extra 1k that is really for equity debt that should be added back to amt anyway. What do you recommend? Do I just allow the 1M and ignore the worksheet. Therefore, there would be issue with AMT? This one is really complicated. Adding it back to amt, helps with the state. Talk to me somemore. | |
| 18 March 2007 | |
| Bell I have actually recently done some research on this because it impacts several of my client. In addition, I was very frustrated w/ some of the services that I subscribe to. Spidell (California research service) does tax update seminars and this year they made several statements re the treatment of home mortgage interest that I thought were either wrong, questionable, or should have been mitigated with a statement that the law is unclear. I just received a PPC book and it did the same thing. Sent emails to both with the research that I had done, calling their attention to the case & FSA, among other issues. No response. The discussion here that I referred you to is more complete.
Not authoritative at all, but it demonstrates the extent of the confusion: BNA help screen seems to think that the interest on debt in excess of $1,000,000 is n/d for AMT. But Lacerte’s help screen states that the interest that goes to Form 6251 is that reported on Sch A that was not used to buy or improve the home. So long story longer, I do not have an answer for you. You will have to come to your own conclusions. | |
| 18 March 2007 | |
| Thanks for your help on a Sunday afternoon. I have been hassling with this most of the day and have read all the leads you have given me, which I am forever grateful. It is undoubtedly, a grey area. My conclusion is to ignore the irs worksheet and limit the deductible interes to 1M. That way I am not dealing with amt at all. I think this is a conservative approach, but taking into the account the large deduction, I would not want to be responsible for the potential penalty and interest this could incur. My client is not going to like the outcome. Jumped the balance due by $6,000. Again, thank you. | |
| March 18, 2007 | |
| How can eliminating mortgage interest on $100K of debt increase the balance due by $6K? Is your client paying 17% interest?
I would think that a taxpayer with a $1.1M+ mortgage is probably already subject to AMT due to Property Taxes and State Income Taxes, so it is probably a moot point. JAD, I have a similar no-success story with PPC on a whole other issue. | |
Southparkcpa (talk|edits) said: | 19 March 2007 |
| The loan interest in my view is limited to $1,000,000 of debt on schedule A and you have NO add back as you have no equity deduction only interest from his original debt. The code limits acquisition debt to $1,000,000 NOT $1,100,000. So, in your example you have no equity debt thus no add back and the interest shoud be limited to interest on $1,000,000.
Just another view point. MGJCPA | |
| 19 March 2007 | |
| PVVCPA I would be very interested in hearing your experience w/ PPC. And here's another one of mine: I was doing an estate t/r (always scary, I don't do many of them, and I always make sure to consult w/ another practitioner who reviews my work to make sure I am not blowing it). There is a code sec for farmers (2032A I believe) where the farmer realizes some fabulous benefit...but the regs say that the code section can only apply if the farmer applies the section to a certain % of his assets. So we didn't qualify. The atty I was working with knew, off the top of his head, that that reg had been declared invalid in case law, and that what I was thinking I couldn't do b/c of PPC analysis was done all the time...So I contacted PPC, and believe it or not they actually called me and told me that they didn't believe that their subscribers wanted them to follow case law....Can you imagine? If they had said we are sorry, we missed it, and we will be updating future releases I would have retained much more faith in them. What happened with you? | |
| 19 March 2007 | |
| Bell, in answer to your question regarding the applicability of the $1 million limit for AMT purposes, the answer is yes, that limit does apply. See Sec. 56(e)(1).
The Internal Revenue Service worksheet merely allows the taxpayer to bifurcate a single debt into 2 separate components: 1) the home acquisition indebtedness portion; and 2) the home equity indebtedness portion. This treatment seems to be contrary to the Pau decision; however, I do not see how a reversal of the Pau decision would change the alt min treatment of this debt. The short answer to your question is that the interest on the $100,000 may be a deduction for regular tax purposes if you ignore the Pau decsion, but it cannot be a deduction for alt min purposes since Internal Revenue Code § 56(e)(1) applies. | |
| 19 March 2007 | |
| Riley, if you ignore Pau and deduct the interest for regular tax, then go to 56(e)(1) to evaluate AMT treatment, that section says qualified housing interest is qualified residence interest. The section specifies that the debt must have been used to acquire etc the home. Then we go to 163(h)(3) for the defn of qualified residence interest. It includes acquisition and home equity debt. So if we ignore Pau, and the full 1.1M was used to buy the home, then why must the interest on the $100,000 be added back for AMT? The limitation of 56(e)(1) seems to be simply that home equity debt may not be deducted for AMT if it was not used for home acquisition. This is the confusion within the Code - this language in the AMT section vs the language in 163 where home equity debt is other than home acquisition debt. Anyway, considering the language of 56(e)(1), why do you believe that if we ignore Pau, the interest on the $100,000 is n/d? I have not been around these posts long, but certainly long enough to get the feeling that you are the smartest one here, and if I'm disagreeing with your conclusion, I suspect it's because I'm not understanding it. | |
| 19 March 2007 | |
| PVVCPA: My client is in the 35% bracket. I ended up eliminating almost 19,000 worth of interest, hence 6K.
Thank you all for the help. | |
| 19 March 2007 | |
| JAD...here's how I see the analysis...to be deductible for AMT, the interest must be qualified residence interest, as defined under 163(h)(3). Under (h)(3), qualified residence interest is either interest on Acquisition Indebtedness or interest on Home Equity Indebtedness (ignore home equity indebtedness because we know that is disallowed for AMT). Acquisition Indebtedness is limited to $1M. Therefore, only interest on the $1M that is Acquisition Indebtedness is considered qualified residence interest for AMT purposes.
By the way, I believe the court in Pau got it wrong, but that is not pertinent to your question. | |
| 19 March 2007 | |
| JAD, the reason the $100,000 must be added back is that the 163(h)(3)(B)(ii) limit specifically applies for alt min purposes (with or without Pau). See Sec. 56(e)(1). | |
| 19 March 2007 | |
| The IRS worksheet caused all the trouble. I would have used the 1M, but it kept throwing in the 100,000. Hence, all my confusion. Then I thought I had to add it back to AMT, and then didn't want to................. I learned alot today. | |
| 19 March 2007 | |
| 163(h)(3)(B)(ii) limits acquisition debt to $1,000,000. 56(e)(1) defines qualified housing interest as QRI on debt used to acquire property. Qualified residence interest is home equity and home acquisition debt (163(h)(3)(A)). So the 163(h)(3)(B)(ii) limit simply applies to limit the amount of debt that his home acquisition debt, but does not apply to home equity debt. $1.1M generates interest that is QRI, which 56(e)(1) seems to accept if both the home equity and acquisition debt are used to buy the house, again assuming Pau is n/a. I don't see where 56(e)(1) limits the interest to interest on only acquisition debt or to interest on only $1M. | |
| 19 March 2007 | |
| JAD... I have to disagree...ask yourself this "How much debt can qualify as Acquisition Indebtedness?" The number does not change between 163(h) and 56(e).
56(e) does limit the interest to only interest on Acqusition Indebtedness (through the definition of Qualified Residence Interest). | |
| 19 March 2007 | |
| Hi, thanks for the response. I don't disagree with you re the overall treatment. The way I learned it was very simple, home equity debt was n/d for AMT, and there was no confusion for years. I started parsing the words in the Code after the Spidell conference (which by the way I raised my hand and said that I didn't think they were right, and everyone in the room said I was wrong, pretty much in unison). And then I got my PPC book, which said the same as Spidell.
Look at the language of 56(e). Nowhere does it limit the debt to acquisition indebtedness. It refers to qualified housing interest and qualified residence interest. 163 defines qualified residence interest as both acquisition debt & home equity debt. 56(e) limits the AMT deduction to interest on debt used for the purchase of the home. If both acquisition & home equity debt are used for the purchase of the home (and Pau is n/a), then where is the limitation for AMT? | |
| 19 March 2007 | |
| JAD, I have read your posts and the code again....a couple of times actually. I believe I now understand your position.
Basically, it's that the $100K of "Home Equity Indebtedness" doesn't lose it's character as "incurred in acquiring, constructing, or substantially improving any property..." under 56(e). The nomenclature of "Home Equity Indebtedness" under 163(h)(3)(C) does not change the nature of the underlying debt. I haven't reviewed the legislative history...subject to that, I now believe you have at least a defensible position, if not more. | |
| 19 March 2007 | |
| Glmpllc, thanks for the work and letting me know that I'm not nuts. Actually, it's not my position, I was simply trying to understand what Spidell was saying. Here is the inconsistency in the Code: 163 defines home equity debt as other than home acquisition debt, and it seems that in Pau and the FSA mentioned above, that phrase was interpreted to mean that home equity debt may not be used to acquire the home. So if that's true, then the limitation on the home equity interest happens in the regular tax calculation...yet the defn in the AMT calculation seems to allow the deduction, which we all know is completely contrary to the AMT if it is not allowed for regular tax.
My criticism of Spidell and PPC is that they simply make a broad statement about how the interest deduction works for regular tax and AMT, with absolutely no mention of or weight given to a Tax Court case or the FSA. I learned these rules as simply being that we had $1M of acquisition debt, a $100k freebie in the home equity debt, (could be used for anything, including acquisition) and that home equity interest was n/d for AMT. And now it's 20 years later on 3/19 and I'm still not sure what I'm going to do in a couple of my 2006 tax returns... | |
| March 22, 2007 | |
| Sorry to bring this post back, but I was sitting on the sidelines waiting for ya'll to do my research for me. So? Who won? I can't tell. I have a couple on my shelf, too. | |
| 23 March 2007 | |
| Ok I am laughing out loud. I have this one bookmarked too to see what others think. Apparently no one cares about this issue.... Seriously, the Code in conjunction with Pau doesn't make sense. When I learned this stuff, the phrase in 163 that defines home equity debt says, "other than acquisition debt" simply meant that the same interest couldn't be both kinds (which is obvious). Pau came to a much more restrictive conclusion, which has been discussed to death. The defn per Pau doesn't make sense at all with the language in 56. So who blew it? The Tax Court in interpreting Pau or the Congress in writing 56? I don't know how we are supposed to figure out that one.
By the way, I went to SLO also. Graduated in 1985 I think. | |
Mtmckeecpa (talk|edits) said: | 23 March 2007 |
| JAD,
I am having trouble following the issue here but I find this thread interesting and also I am interested in what others may think or do in practice.... Is the issue focus on home equity indebtedness and whether or not it is fully deductible for AMT? My apologies if that is a lame question/interpretation of the above posts... | |
| 23 March 2007 | |
| Mtmckeecpa, yes. If home equity indebtedness is used for home acquisition then is it fully deductible for AMT? If you start reading from Glmpllc's last post, you will be up to speed. You don't need to read the whole thread. | |
| March 23, 2007 | |
| 1985...you think? Sounds like you spent your last year studying at Bulls Tavern. We just missed each other. I started there in 1987. Finished in 1993. Why do they call it a 4-year college anyway?
I am refraining from dipping my toe into the code on this issue. I can see you are already up to your neck. Do you ever get the feeling that us Tax Pros care more about the Code than the IRS? I mean, really, do you thing the IRS is gonna even touch the $1.0M vs $1.1M issue in an audit. I have yet to see an audit on any Home Equity Interest issue. But here I am keeping schedules for all of my clients everytime they hit their home's equity. I will be ready for that audit. Come on! Audit me! I dare you! Anyone, anyone... | |
Death&Taxes (talk|edits) said: | 23 March 2007 |
| Ten years ago when I first ran into this issue I spoke with an IRS specialist in HQ in DC; this was back when Quickfinder used to publish their telephone numbers. Now he is not God talking to Moses, but he used the worksheet and included the full 1.1 in the computation....I still do that client and I bet somewhere in his file I have the notes and name. | |
| 23 March 2007 | |
| PVVCPA, yes I think, and yes I spent quite a bit of time at Bulls. But the friends were drinking, not me, because I never acquired the taste for beer. But by the time we got there, I had already had my fill at the Spindel, outside each Friday aft, listening to the music. It was at least 5 years into the working world before I wasn't completely resentful on a Friday afternoon that I wasn't outside drinking wine coolers. But enough of this digression. | |
| 23 March 2007 | |
| Death & Taxes: What did you do when you got to AMT? Did you add back the interest representative of the 100,000 or did you consider it all to be acquisition debt? | |
Death&Taxes (talk|edits) said: | 23 March 2007 |
| Don't see why. The 100K was used to acquire the house. Borrow 100K of HELOC today and put on an addition and it is acquisition debt. Neither of us raised that issue in the discussion. In that old discussion, this man's income was at 39% back then; doubtful he would be anywhere near the AMT line. | |
| 23 March 2007 | |
| Was this pre or post Pau? And do you think that Pau impacts the treatment? | |
Death&Taxes (talk|edits) said: | 23 March 2007 |
| I cannot recall, and remember this was a person perhaps caught at his desk on a slow day. If I recall, our issue was more on the computation during the year when my client bought a second property and left 1M or 1.1 far behind, and I recall he was using that same worksheet still in the publication.
The issue will become more prominent since the limit has been with us since 1987 and never raised for inflation. I don't think anyone wants to pray for the total deflation of the housing market to eliminate the question. | |
| 23 March 2007 | |
| You know I think PVVCPA is right anyway...who has ever been audited on this issue? And for one of my clients, the interest rate is 2.53%....At issue is $2,530, tax effect less than $1,200 including the state impact. But it's still interesting to wonder whether Tax Court or Congress blew it. | |
Death&Taxes (talk|edits) said: | 23 March 2007 |
And as Kevin will tell us, we cannot make decisions based on audit probability  . Let me posit something: New client walks in and hands you 1098 with 80K. You look at last year and mortgage interest was 81.5K....preparer was a well known firm so your guard is down, but unless you ask and he tells you he has a 2.53% rate, would you guess his debt might be over 1.1m.
It happened to me once and in fact the preparer the year before was a Big Four firm from what I could see. Debt was 1.6m | |
| 23 March 2007 | |
| Have you been at those places? Let's see how many people I can totally alienate now...the work gets pushed down to the lowest level. The people preparing are fresh out of college, and as you all know, the textbooks don't tell you a thing about how to really prepare a return. And the budget for doing the prep is extremely tight. Then the supervisor reviews the work but only has 1/4 - 1/2 as much time to review....and the manager glances at it...and the partner signs. And the work has been pushed through with no one really able to do the best job possible b/c the only person really in the detail is the youngest one who knows little and no one has time to think clearly. | |
| March 23, 2007 | |
| I would like to expand on D&T's scenario. Does anybody ask that new client about their history of refinances, and how much equity has been pulled out over the life of the home, and whether or not that equity was used for improvements or not? We just tend to presume that the new client walking in the door does not have a prior Equity Interest issue. | |
Death&Taxes (talk|edits) said: | 23 March 2007 |
| New clients, PVV? A doctor sat here two weeks ago, has a co-op in NYC and he's telling me he bought the unit upstairs for his college age son to live in while he goes to school. Then he says something about the bastards at the bank told him he had to use his current unit as collateral, not the new unit for they feared he'd rent it out. Clang Clang Clang...alarms go off, but I had little time, so I set up a telephone talk in late April. Told him there are some problems....some????? But had he not spoke, he would have come in next year and I would never know.
Has anyone ever seen an audit on equity issues? | |
| March 23, 2007 | |
| JAD, You are more bold than me. And what % of them have ever heard of this rule about equity interest before? Somewhere between 0% and 0.1%, right? They stare at you like you are crazy.
I explain the rules to all new clients and to all existing clients almost every year. But, for some reason, I give the new clients a pass by not quizzing them about the history on their refinances. This last week, I was explaining this to a new client. She was thinking of taking an equity line out of her rental and then gift the money to her daughter as a down payment on a house. I was trying to tell her that the interest on new equity line would be non-deductible. Her response was, "I'm confused. I don't see how this 'rule' helps me?" | |
| 23 March 2007 | |
| I haven't smiled for hours. Thanks for the laugh. Since when was the Code designed to help people?
As I go through people's stuff, I explain everything. Eyes glass over. Jaws drop slack. People start drooling. But years later no one ever says that I didn't tell them. I have one client who I adore who says JUST STOP! I DON'T WANT TO KNOW! I TRUST YOU! JUST TELL ME WHAT TO DO! Some actually get into it and learn enough to be dangerous. Everyone else just sits there sleeping with their eyes open. | |
| March 23, 2007 | |
| "Some actually get into it and learn enough to be dangerous. Everyone else just sits there sleeping with their eyes open." LOL! That is so true!
I have one guy (the engineer type) that actually does his mortgage interest allocation worksheets for me. He varies between owning 3 to 7 rentals/investment properties in any given year. Constantly drawing equity from one to buy another. He brings to my office his 4 page "summary", but brags about the "detailed" version of Excel spreadsheet that he keeps at home. I tried to offer him a job this last year. Damn! I wish CPA firms had stock options. | |
| 23 March 2007 | |
| JAD, I follow your reasoning, and I agree that there is nothing in the statute that says that home equity indebtedness cannot be Sec. 56(e)(1) interest (Qualified Housing Interest).
In fact, the IRS MSSP fully supports this viewpoint. Quoting directly from the MSSP, "The only mortgage interest not allowed for AMTI purposes would be any home equity indebtedness taken out by the taxpayer which is not used to improve the property." | |
| 23 March 2007 | |
| Okay after reading all this, now I'm totally confused. Does 163(h)(B)(ii) cap the amount of debt that can be "acquisition debt" at $1 million? Or can debt exceeding $1 million be "acquisition indebtedness" but just not be "treated" as aquisition indebtedness? Pau seems to say the latter, although the code isn't very clear. RIA Checkpoint does a pretty decent job noting the confusion on whether interest paid on a single debt can be treated as both acquisition and home equity. | |
| March 23, 2007 | |
| Bengoshi, thank you for reading thru all of this for me. I, too, am awaiting the conclusion.
All in favor of treating the additional $100K of acquisition debt in excess of the first $1M as equity debt, say "aye". All opposed say "nay". No references to tax code are permissible in your reply. | |
| 23 March 2007 | |
| PVV..sorry for my confusion, but do you mean treat the extra $100K as deductible for AMT? | |
Death&Taxes (talk|edits) said: | 23 March 2007 |
| Going back to the Committee Reports for TRA 86 for the minimum tax we read, "the definition of qualified residence interest is the same as under prior law except that the residence must also qualify for purposes of regular tax." A footnote then says "It was intended tht only interest qualifying as qualified residence interest for purposes of the regular tax would qualify as such for purposes of the minimum tax. A technical correction may be necessary to achieve this result." Italics are mine | |
| 23 March 2007 | |
| D&T...disregarding Pau, it would be qualified residence interest. | |
| March 23, 2007 | |
| Glmpllc, No. If we call it equity interest then it would be deductible for regular purposes only. | |
| 23 March 2007 | |
| Aye (with hesitation).
So if I'm reading this right, the first question is: (a) Is acquisition indebtedness any indebtedness used for acquiring, constructing, substantially improving a qualified residence, OR (b) Is acquisition indebtedness any indebtedness up to $1 million used for acquiring, etc. a qualified residence. If (b), then the interest on the excess over $1 million may be home equity indebtedness AND qualified housing interest at the same time, and thus deductible for both regular and AMT purposes... | |
| 23 March 2007 | |
| Bengoshi, I think you are assuming that term “home acquisition indebtedness” as used in Sec. 163 is synonymous with the term “interest incurred in acquiring, constructing, or substantially improving…….”, as used in Sec. 56(e). I think the point that JAD was making, with which I now concur, is that the two terms are not synonymous.
Therefore home acquisition indebtedness under Sec. 163 is limited to $1 million, Qualified Residence Interest under Sec. 163 is limited to $1.1 million, and “Qualified Housing Interest” under Sec. 56(e) is limited to the amount of Qualified Residence Interest under Sec. 163 that is used to acquire, construct, or substantially improve the residence (not more than $1.1 million). In most cases the 56(e) limit will be the same as the 163 limit for home acquisition indebtedness. However, in the case where some of the home purchase or improvement indebtedness is classified as home equity indebtedness (See Internal Revenue Service worksheets), the 56(e) limit is higher than the home acquisition indebtedness limit under 163. | |
| 24 March 2007 | |
| Thanks Riley. I think I'm starting to get what you and JAD are saying. Hope I don't have to deal w/ this anytime soon. | |
| 24 March 2007 | |
| Riley, do you then see Pau as just a bad decision by the Tax Court? | |
| 24 March 2007 | |
| Yes, the Tax Court is overlooking the statutory definition of home acquisition indebtedness. | |
| 24 March 2007 | |
| Although I believe that the Pau decision is wrong, it is easy to see how the Tax Court arrived at its decision. Reading from the Committee Reports from the 1987 Revenue Act, the House Committee report says exactly what the Pau court said about the $1 million limit, “Under the bill, the total amount of acquisition debt that can give rise to qualified residence interest is $1 million. Thus, if the taxpayer's debt to acquire, construct or substantially improve his principal and second residence exceeds $1 million, then only the interest on a total principal amount of $1 million of such debt is deductible as acquisition interest.” | |
| 24 March 2007 | |
| Now I'm confused. Then is the unstated next phrase that would make sense "But home equity debt used to acquire, construct or substantially improve taxpayer's home gives rise to deductible interest on debt of up to $100,000" or "Interest on home equity debt up to $100,000 used to acquire, construct or substantially improve taxpayer's home is not deductible for regular tax but is deductible for AMT"? The first sentence is not consistent with the statement that you quoted above. The second sentence is consistent with the statement and the language of the Code that we have dissected, but is contrary to the normal mechanism of the AMT. | |
Death&Taxes (talk|edits) said: | 26 March 2007 |
| This discussion is a godsend. Last night I noted a Wells Fargo statement on a house purchased last year where ending balance was $1M, and a Chase second mortgage statement with interest, which it turned out to be a 179,000 second mortgage used to acquire the home. I was just faxed the HUD-1 and see both mortgages. Both are interest only. Had Wells Fargo not put the balance on the statement, the interest would have not led me to the belief that the debt exceeded limits. Now I am down to figuring how much is deductible!!!! And he is not near AMT....he is one of those people who outearns AMT. | |
| 5 May 2007 | |
| CA practitioners, have you received your May Spidell newsletter? It is interesting to compare their statement of the law to what they were teaching at the seminars (see your 2006 fed seminar book, p 2-15). They seem to have changed their position, moving towards Pau, defining equity debt as debt used for purposes other than to buy etc the home. But then their Example of Allocating Deduction shows that interest being deducted. Finally, they say that equity debt is n/d for AMT, different from their previous position. And from the statutory language if debt is used for home acquisition or improvement.
I bring this up partly b/c I am still smarting from practically being boo'd at the seminar when I brought these issues up. Or to look at it from a positive angle, the discussion here has been very thorough and even better than information received from the research service (although generally I do like Spidell very much). I suppose the flip-flop simply demonstrates that the issue is quite unresolved. Thank you again to all who participated in this discussion and helped me solify these issues in my mind. | |
| May 5, 2007 | |
| Jessica,
I did read it. Their example has a home with $1.3M purchase + improvement loan. In this example, they treat $1M as acquisition/improvement debt and $100K as equity debt. Is this example consistent with their seminar material? The 'ayes' are still ahead. | |
Death&Taxes (talk|edits) said: | 5 May 2007 |
| Here's another discussion on the Million Mortgage Madness: Discussion: Mortgage Limitation/Domestic Partners For my purpose, I love Riley's thoughts, but once again there is so little in the Regs or case law to back it up. Perhaps we will reach a day when "Riley writes" will be as sufficient as citing CCH or RIA to an auditor. | |
{{ForumReplyPost|UserID=JAD|Date=7 May 2007|Text=Paul, per Spidell
On use requirements to deduct interest on home equity debt:
"It can be used for any purpose, including but not limited to the purchase, construction, or substantial improvement of the taxpayer's main or second home" (2006 Federal Fall Seminar, page 2-15)
"To fully deduct the home mortgage interest, the interest must be acquisition or equity debt....Qualifying equity debt is any mortgage taken out after 10/13/87 for purposes other than to buy, build, or improve the home... (5/1/2007 Tax Letter)
But then see the "Example of Allocating Deduction", in the same tax letter, where they show as deductible the interest on the equity debt used for a home addition.
On requirements to deduct interest on home equity debt for AMT:
"For AMT, interest on home equity indebtedness is only deductible if the loan was used to buy, build, or substantially improve the taxpayer's main or second home..." (2006 Federal Fall Seminar, p 2-15)
"For AMT purposes, the taxpayer may only deduct acquisition debt, not equity debt" (5/1/2007 Tax Letter)
