Discussion:Deductible Mtg Int?

       Purch: 8/93 - $155k and 40k of improvements up to 2002 – Adj Basis $195.  

(A) Mtg balance of $217k was paid off in 2002 with SmithBarney Credit Line secured by securities.

(B) Acquired 2003 - 1st Mtg Secured by Home – 2006 Interest Pd

    7k.  Prin. Bal. 12/31/06 - $126,627

(C) Acquired 2003 - 2nd Mtg Secured by Home – HELOC – 99k Available

    Interest Pd in 2006 $7k.  Prin. Bal. 12/31/06 - $86,537 

Q1: Is not original acquisition debt (A) interest paid in 2006 considered investment interest expense?

Q2: Referring to Pub936, Pg9, Table 1, Part I – only qualified loan limit (Line 8) would be 100k since (A) was paid off correct?

Q3: RE: Part II, deductible Mtg Int: (100,000/213,164 X 14k = $6,658 correct? Assumes no amounts from loan (B) or (C) represent Business or Improvements expenses, all personal.

According to some of my associates they state I can use the adjusted basis $195k therefore 195,000/213,164 X 14k = $12,807 as deductible Mtg Interest. Looking at quickfinder and other sources

I see no reference this is correct method. Key here is Home acquisition debt secured by home to Buy, Build, Improve, which there is none just Home Equity debt….or am I missing something?

In fact others just tell make take the full 14k and don't worry about it...most other accountants do the same!

Comments?

"In fact others just tell make take the full 14k and don't worry about it...most other accountants do the same!"

You need new associates.

by Smithbarney's Express Credit Loan secured by the owner's investment portfolio not the qualified residence?

A) In general

         The term investment interest means any interest allowable
         as a deduction under this chapter (determined without regard to
         paragraph (1)) which is paid or accrued on indebtedness
         properly allocable to property held for investment.
       (B) Exceptions
         The term investment interest shall not include -
           (i) any qualified residence interest (as defined in
             subsection (h)(3)), or

Understand Exception, however how is this now qualified residence interest when the orignally Mtg has been paid off? See below:

The term acquisition indebtedness means any
         indebtedness which -
             (I) is incurred in acquiring, constructing, or
           substantially improving any qualified residence of the
           taxpayer, and
             (II) is secured by such residence.