Discussion:Rental interest deduction
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Discussion Forum Index --> Tax Questions --> Rental interest deduction
| 23 July 2009 | |
| A client is considering the purchase of rental property in Hawaii in a short sale. He is thinking of offering cash, to make the offer more attractive, but will later need to mortgage the property for about 60% of what he hopes will be the purchase price. Since this won't really be a "refinance," he's asking if the interest will be deductible. I'm not having any luck finding guidance in my research materials. Does anyone out there have a comment or a cite? Thanks for any help. | |
Death&Taxes (talk|edits) said: | 23 July 2009 |
| How many days is 'later?' With a personal residence, there is usually a 90-day period in such a situation where the debt is considered acquisition debt. | |
| 23 July 2009 | |
| He plans to mortgage the property soon after the deal closes. A mortgage broker has told him it should be easy to secure a mortgage. Since short sales typically take some time, he should be able to work on the financing while his offer is being considered.
It seems to me he should only do the deal if he thinks he is getting a fantastic bargain and will profit by future appreciation. He already has a mortgage on his primary residence close to $1.1M, so won't be able to deduct the interest as qualified mortgage interest on a second home, and in his income bracket, he won't get a current deduction for a rental loss. Thanks for your comments. | |
| 23 July 2009 | |
| Hold on Cab, since rental property this is not a second home and there is no 1.1 mil cap. Only "aquistion" or improvement requirement.
DT - I thought the window was longer but will have to look it up. | |
| 23 July 2009 | |
| DT - You are correct on the 90 days. I was thinking of the 24 month window if you were building or improving home. | |
Harry Boscoe (talk|edits) said: | 23 July 2009 |
| Is the 90-day window for personal use residence *only* for personal use residence, maybe not for rental property? | |
Death&Taxes (talk|edits) said: | 23 July 2009 |
| I wish I knew, Harry. It's the only guidance I know, and I'd love to know the source, EZ. I know it has been quoted here, but darned if I can find it. Seems to me in the instant case, it sounds like the loan would come very soon after settlement. | |
Harry Boscoe (talk|edits) said: | 23 July 2009 |
| "...I'd love to know the source...."
Me too. I think it was in a Q&A format, and from the late 80's. I *used to* be able to find it pretty easily, but then I started drinking in the morning. | |
RoyDaleOne (talk|edits) said: | 23 July 2009 |
| See NOTICE 88-74 | |
Harry Boscoe (talk|edits) said: | 23 July 2009 |
| == YES! == | |
Death&Taxes (talk|edits) said: | 23 July 2009 |
| Thank you, RD1! You are a life saver. When you get to be my age, you wonder if your knowledge is only something you made up, or did you actually read it somewhere? | |
| 23 July 2009 | |
| Thanks for all the interest and responses.
I read Notice 88-74, but it applies to home mortgage interest. As I stated, my client already has close to $1.1M in home mortgage debt on his primary residence, so if the Hawaii property is treated as his second home, he's not going to be able to deduct the interest, right? Does anyone know if the same 90-day provision set out in 88-74 applies to a mortgage on rental property? | |
| 23 July 2009 | |
| See Reg. 1.163-8T. | |
| 23 July 2009 | |
Also, see Notice 89-35.
http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irl47a8/1/doc | |
RoyDaleOne (talk|edits) said: | 24 July 2009 |
| No it is 30 days. | |
| 24 July 2009 | |
| The client hasn't decided if it's rental property or a second home. Since his income is over $150k a year, I don't think he's going to get a good write-off either way, so he should probably only do the deal if he thinks he will profit by long-term appreciation. Or if he has really fallen in love with the place....
I'll take a look at Taxteck's links over the weekend. Thanks for all the input. | |
