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Finance & Stock Groups Forum Index » Financial Planning » Mortgage interest question
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| HW \"Skip\" Weldon |
 Posted: Sun Aug 12, 2007 6:11 pm |
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Homeowner buys a new home and immediately moves into it. Still owns
old home, but it is vacant and for sale.
Both homes have mortgages. Old home (for sale) still has mortgage
balance of $185,000 and new home mortgage has new 1st mortgage of
$300,000.
To what extent, if any, is homeowner limited on his/her ability to
deduct interest on both mortgages?
-HW "Skip" Weldon
Columbia, SC |
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| Guest |
| Posted: Sun Aug 12, 2007 7:22 pm |
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On Aug 12, 7:11 am, "HW \"Skip\" Weldon"
<skip5700removet...@hotmail.com> wrote:
Quote: To what extent, if any, is homeowner limited on his/her ability to
deduct interest on both mortgages?
-HW "Skip" Weldon
Columbia, SC
This is discussed in IRS pub 936:
http://www.irs.gov/pub/irs-pdf/p936.pdf
Both mortgages are deductible. Always confirm anything you think you
know with a CPA.
Happy Deducting! |
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| Mark Bole |
| Posted: Sun Aug 12, 2007 7:54 pm |
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HW "Skip" Weldon wrote:
Quote: Homeowner buys a new home and immediately moves into it. Still owns
old home, but it is vacant and for sale.
Both homes have mortgages. Old home (for sale) still has mortgage
balance of $185,000 and new home mortgage has new 1st mortgage of
$300,000.
To what extent, if any, is homeowner limited on his/her ability to
deduct interest on both mortgages?
Mortgage interest deduction applies to both a first and second home, so
probably no limitations apply, unless homeowner already has another
property that he is treating as his second home.
To briefly review: no tax benefit from home mortgage interest deduction
unless taxpayer itemizes deductions on Schedule A. (So it's really only
the total amount above the standard deduction that is doing any good).
Only interest on home acquisition debt plus up to $100K of home equity
debt is fully deductible. If any mortgage obtained prior to 10/13/1987,
special grandfather rules apply.
If second home becomes a rental or investment property, interest would
continue to be deductible but under somewhat more liberal rules.
-Mark Bole |
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| Will Trice |
| Posted: Sun Aug 12, 2007 8:38 pm |
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Mark Bole wrote:
Quote: HW "Skip" Weldon wrote:
Homeowner buys a new home and immediately moves into it. Still owns
old home, but it is vacant and for sale.
Both homes have mortgages. Old home (for sale) still has mortgage
balance of $185,000 and new home mortgage has new 1st mortgage of
$300,000.
To what extent, if any, is homeowner limited on his/her ability to
deduct interest on both mortgages?
Mortgage interest deduction applies to both a first and second home, so
probably no limitations apply, unless homeowner already has another
property that he is treating as his second home.
I'm sure you're right, but publication 936 states this about the
definition of a qualified home (i.e. qualified for the mortgage interest
deduction):
"Qualified Home
For you to take a home mortgage interest deduction, your debt must be
secured by a qualified home. This means your main home or your second home."
And then publication 936 has these definitions of first and second home:
"Main home. You can have only one main home at any one time. This is
the home where you ordinarily live most of the time.
Second home. A second home is a home that you choose to treat as your
second home.
Second home not rented out. If you have a second home that you do not
hold out for rent or resale to others at any time during the year, you
can treat it as a qualified home. You do not have to use the home during
the year."
Note that the last paragraph says that a second home can be treated as a
qualified home if it is not held out for resale. What if it is held for
resale as in Skip's example? As I said, I would think that both
mortgages in the example are deductible. So what is the intent of the
"or resale" clause above?
-Will |
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| Mark Bole |
| Posted: Mon Aug 13, 2007 12:44 am |
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Will Trice wrote:
[...]
Quote: Second home not rented out. If you have a second home that you do not
hold out for rent or resale to others at any time during the year, you
can treat it as a qualified home. You do not have to use the home during
the year."
Note that the last paragraph says that a second home can be treated as a
qualified home if it is not held out for resale. What if it is held for
resale as in Skip's example? As I said, I would think that both
mortgages in the example are deductible. So what is the intent of the
"or resale" clause above?
I don't know, but I speculate that it is trying to address the "property
held for investment" situation.
The text might have been inserted as a result of some past court
decision, or specific wording in the tax law, which I haven't looked up.
Given the way "home" is defined, it's hard to see how an
otherwise-qualified mortgage interest deduction could be disallowed for
any second residential property that you weren't already getting the
deduction for some other way. In fact if you have multiple properties I
believe you can even change the designation of your "second home" as
often as you wish during the course of the year (as long as you are not
claiming the two second-home properties for the same period of time,
i.e. no double dipping).
-Mark Bole |
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| Don |
| Posted: Mon Aug 13, 2007 2:01 am |
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"HW "Skip" Weldon" <skip5700removethis@hotmail.com> wrote in message
news:aq4ub39j5o3h2uom30il62h28l80arfs54@4ax.com...
Quote: Homeowner buys a new home and immediately moves into it. Still owns
old home, but it is vacant and for sale.
Both homes have mortgages. Old home (for sale) still has mortgage
balance of $185,000 and new home mortgage has new 1st mortgage of
$300,000.
To what extent, if any, is homeowner limited on his/her ability to
deduct interest on both mortgages?
I have been in this situation several times with one variation: For a while,
we couldn't decide whether to sell the old home or hold on to it and rent it
to tenants. We eventually held on to it. The mortgages on both places were
always deductible from day 1. If I am not mistaken, one could move a second
time within a short period and then have three homes and three mortgages.
Interest on all would be deductible. |
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| Will Trice |
| Posted: Mon Aug 13, 2007 3:19 am |
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Don wrote:
Quote: If I am not mistaken, one could move a second
time within a short period and then have three homes and three mortgages.
Interest on all would be deductible.
I don't think this is true, or is it? Assuming that none of the homes
were rental properties or otherwise held in a way that mortgage interest
is deductible other than as a home, I believe you're limited to
deducting interest on two properties, your main home and another of your
choice, during any one time period as Mark pointed out. How's that for
a run-on sentence?
-Will |
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| Don |
| Posted: Mon Aug 13, 2007 4:46 am |
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"Will Trice" <wwtrice@paragondynamics.com> wrote in message
news:46BF9585.4060501@paragondynamics.com...
Quote: I don't think this is true, or is it? Assuming that none of the homes
were rental properties or otherwise held in a way that mortgage interest
is deductible other than as a home, I believe you're limited to deducting
interest on two properties, your main home and another of your choice,
during any one time period as Mark pointed out. How's that for a run-on
sentence?
You are probably right. I was assuming that two properties were being held
as rental properties, so you would have three interest deductions. If those
restrictions applied to rental property, lots of people would be upset. |
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