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Discussion Forum Index --> Advanced Tax Questions --> Spouse Refin's Princ Res to Pay Off X
Discussion Forum Index --> Tax Questions --> Spouse Refin's Princ Res to Pay Off X
Tax1214 (talk|edits) said:
| 12 February 2008
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| Does the proceeds on refinancing, used to pay off an ex spouse's equity position in a jointly owned principal residence (as incident to the divorce) qualify as acquisition debt to the spouse for mortgage interest deduction purposes?
Any information would be greatly appreciated.
Thanks All
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Jdanielle (talk|edits) said:
| 12 February 2008
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| It is treated as acquisition debt up to the amount of the original mortgage, the excess is treated as home equity debt. There is a worksheet in IRS Pub 936
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Death&Taxes (talk|edits) said:
| 12 February 2008
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| Publication inconsistencies: that same Publication 936 on page 9 simply says it is acquisition debt, with no further discussion.
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Riley2 (talk|edits) said:
| 12 February 2008
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| The entire amount paid to the ex-wife will be treated as acquisition indebtedness. See Notice 88-74.
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Death&Taxes (talk|edits) said:
| 13 February 2008
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| Thank you, Riley!!!!! I took that position three years ago but could not find the reference, but remembered not relying solely on the publication. And we are talking about mucho dollars here.
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EZTAX (talk|edits) said:
| 14 February 2008
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| Great info thanks. I have been wondering about this. Am I correct in my understanding that even though the debt is considered acquistion debt, the basis (since it was part of the divorce) does not change. In other words, we are not able to add the ex-spouses buy out to our basis. I remember reading that if the deal is structure properly it can be done but I am unclear how.
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Riley2 (talk|edits) said:
| 14 February 2008
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| You would need to purposely cause the transaction to be excluded from the application of Sec. 1041. Therefore, if the transfer took place more than one year after the divorce and the transfer was not made pursuant to a divorce or separation instrument, the nonrecognition rules would not apply.
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Death&Taxes (talk|edits) said:
| 14 February 2008
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| In my case, the ex-husband sued the wife when he found collusion between the appraiser and her on the value of the house, and it was mucho money.....she was fined mid five figures, had to pay his legal fee and pay him the difference in value over that in the property settlement. She financed it all, but of course, the fine and the fees were not acquisition debt! I treated it as one transaction arising out of the property settlement.
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Guadalupe (talk|edits) said:
| 3 March 2009
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| similar scenario but taxpayer refi rental property which was already paid off to buy out ex as divorce settlement. Would new debt (500K) be treated as acquisition indebtness and interest deducted in sch. E?
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