Discussion:Mortgage interest deduction - limitations
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Discussion Forum Index --> Advanced Tax Questions --> Mortgage interest deduction - limitations
Discussion Forum Index --> Tax Questions --> Mortgage interest deduction - limitations
| 1 February 2008 | |
| I have a client who purchased a home about 12 years ago for $230,000. He took out a $130,000 mortgage and paid the balance in cash. About 5 years later he refinanced the mortgage for $230,000 and used the funds pulled from the refi to pay off other debt. Several years after that he established a Home Equity Line of Credit that was partially used to make improvements to his home. The current balance on the HELOC is about $60,000.
I have several questions. Is the home acquisition debt limited to the original loan of $130,000 or is the refinanced amount of $230,000 considered home acquisition debt? If the original loan is the only debt that can be considered home acquisition debt, then is the additional $100,000 taken out when he refinanced the debt considered home equity debt which would max out his available home equity debt? If so, the interest on the HELOC would not be deductible - right? But if the full $230,000 can be considered home acquisition debt, then I would assume he could deduct the interest on the HELOC since it does not exceed the $100k limit. | |
| 1 February 2008 | |
| Acquisition debt is the amount owed before the refinance plus the amount of the HELOC used for improvements. See Sec. 163(h)(3)(B)(C).
You can always use the worksheet in Publication 936 to clarify your thinking. | |
