Discussion:Home Equity Debt in Excess of $100,000-Confused
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Discussion Forum Index --> Advanced Tax Questions --> Home Equity Debt in Excess of $100,000-Confused
Discussion Forum Index --> Tax Questions --> Home Equity Debt in Excess of $100,000-Confused
| 14 October 2007 | |
| I posted a portion of this in another thread, but that other post had so much input I think this question got buried, so looking for some additional guidance, because the more I think about this, the more I get confused - it must be taxes.
I have been under the impression that, if a taxpayer refinances his home, and lets say pulls out $190,000 of equity (with no prior mortgage and the basis of the home say $500,000), he can deduct the interest on up to $100,000 of debt as home equity mortgage debt. No problem there. But I am confused about the other $90,000. Obviously if the $90,000 is spent on personal expenditures, no interest is deductible on the $90,000. But what if $50,000 of the $90,000 is spent for the taxpayer's schedule C business. Should he be able to deduct the interest allocated on the $50,000 as business interest due to interest tracing rules? Or, does the fact that the total debt is mortgage debt "taint" the ability to trace the interest on the debt in excess of the $100,000? Some seem to say yes, some seem to say no, if I am interpreting some of the posts correctly. I am aware of the election to get out of treating the debt as home mortgage debt, and the fact if you make that election it taints the whole loan. But what would be the case here? | |
Death&Taxes (talk|edits) said: | 14 October 2007 |
| See Hadlin's reference to Publication 936 in Discussion: Soemthing in the Water? Acquisition Debt, mortgage | |
| 15 October 2007 | |
| As D&T says, Pub 936 makes it very clear that in your situation you can trace the proceeds of the mortgage that exceeds the mortgage interest deduction limits, without having to make the election not to treat the debt as home mortgage debt.
Therefore, as you hoped, the interest on the $100,000 is deductible home equity interest, and the interest on $50,000 can go to schedule C, without any election. The whole issue is confusing to the point of being bizarre, and what is really unfair is the fact that the rules were made 20 years ago, with no increase in the limits, plus the AMT is hitting more and more, with regard to the otherwise deductible interest on $100,000 of home equity debt. | |
| October 16, 2007 | |
| Geeez. That's been twenty years now. Thanks, Smokey................................argh................!!!!!!!!!!!! | |
| 16 October 2007 | |
| JDACPA - Thanks for bringing this up again. I am still trying to work this out and would like to go back to some of the more perplexing details after the 15th. Bifurcate??? I can't even spell it!
Hope everyone survived another 15th. | |
| 16 October 2007 | |
| JDACPA states," I am aware of the election to get out of treating the debt as home mortgage debt, and the fact if you make that election it taints the whole loan. " Please tell me what you mean by "tainting the whole loan." Does this mean that all of the interest related to the loan for which there is an election is deducted on the Schedule C, for example? | |
| 18 October 2007 | |
| Chase - This issue appears to be quite unsettled. Try this link for a pretty thorough writeup:
I think tax practitioners are all over the place in their opinions on whether the election to treat home equity debt as not secured must apply to the entire debt or not. And how about if you want to rescind the election? Has anyone tried to do this? Do we need a positive response, or can we just assume approval if we submit some sort of tax return attachment or letter? What a mine field! | |
