Discussion:IRS Pub 936, IRS Code 163
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Discussion Forum Index --> Advanced Tax Questions --> IRS Pub 936, IRS Code 163
Discussion Forum Index --> Tax Questions --> IRS Pub 936, IRS Code 163
| 7 September 2008 | |
| I currently have a client under audit for his deductible mortgage interest expense. He had $1.5 mil in two loans secured by his qualifed residences. Of this amount $415k was used to invest in a new business a few years back. I am in disagreement with the IRS agent as to how this can be allocated.
Per IRS PUB 936, first the Qualified Loan Limit is determined, then the taxpayer's deductible home mortgage interest is calculated. The deductible home mortgage interest is subtracted from the total interest that was paid. The difference is not deductible as home mortgage interest. But, if you used part of the mortgage proceeds for investment purposes, then you are allowed to deduct a portion of that interest as investment interest expense according to the rules on page 12 of the Publication (415k / 1.5 mil x portion of nondeductible home mortgage interest). The agent says that Publication 936 is incorrect! I am following the IRS's own interpretation and position on the Code and he says their own Publication is inocrrect. The difference in how he is allocating the interest and how I am allocating it is about $44,000 in tax for the client. Has anyone run across this? Has anyone ever seen the IRS say their Publication is incorrect? | |
| September 7, 2008 | |
| If the $ 415,000 was used to acquire a business, shouldn't it be allocated to the business (Sch C, or even against K-1) rather than investment interest? Perhaps the agent hasn't considered that position. | |
| 7 September 2008 | |
| Could the 415K for business acquisition actually be traced under Reg. 1.163-8T? If so, see Reg. 1.163-10T(e). | |
Death&Taxes (talk|edits) said: | 7 September 2008 |
| Looking back at my notebook from last year's NCPE seminar, I note it says if an election was made under Reg. 1.163-10T(o)(5) it is unclear whether such election would taint the rest of the mortgage debt....in other words would such election prevent the balance from being claimed as home mortgage interest, and for that reason they recommended taking out two separate loans......
however in your case you do not mention such an election. Could it be the agent is making such a read incorrectly or that your client made such an election? | |
| 8 September 2008 | |
| Bjordan
I make no comment on the merits of your position but only on your ability to rely on the pub. Here are the words of the Tax Court - " Taxpayers who rely on IRS publications do so at their own peril". IRS publications are considered informal and do NOT constitute authority as per Reg ยง1.6662-4 | |
