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Equity Line used to buy Tax free Bonds joetaxpayer 03-31-2008
Posted by joetaxpayer on March 31, 2008, 8:20 am
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 I remarked to someone that I was pretty sure that one cannot borrow
money (and deduct the interest) if the proceeds are used to buy tax-free
bonds or tax free bond funds. I am certain that at one point in time
that was true, but now I am unable to find a reference to an IRS reg
stating this. Can someone confirm this with a reference I can pass along?
Joe
www.blog.joetaxpayer.com

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Posted by Elle on March 31, 2008, 1:44 pm
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>I remarked to someone that I was pretty sure that one
>cannot borrow money (and deduct the interest) if the
>proceeds are used to buy tax-free bonds or tax free bond
>funds. I am certain that at one point in time that was
>true, but now I am unable to find a reference to an IRS reg
>stating this. Can someone confirm this with a reference I
>can pass along?

Pub. 936, page 4 confirms what you say. Specifically, a
HEL's interest is not deductible if one uses the proceeds of
the loan to buy securities or certificates that produce
tax-free income.

I see the IRS web sites I cited earlier in another thread do
not explicitly include this exception. One has to read Pub.
936 for the fine print.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by AES on March 31, 2008, 3:12 pm
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> Pub. 936, page 4 confirms what you say. Specifically, a
> HEL's interest is not deductible if one uses the proceeds of
> the loan to buy securities or certificates that produce
> tax-free income.
>

But I assume the interest on a home-secured HELOC over $100K should
continue to be deductible if one is retired, 70+, living on withdrawals
from tax-deferred IRAs (non-annuitized), and using occasional
withdrawals from that HELOC to supplement the mandatory minimum
withdrawals each year? -- objective of this exercise being to keep
maximum amount exarning in the tax-deferred IRA accounts.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Phil Marti on March 31, 2008, 3:48 pm
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"AES" wrote:

>> Pub. 936, page 4 confirms what you say. Specifically, a
>> HEL's interest is not deductible if one uses the proceeds of
>> the loan to buy securities or certificates that produce
>> tax-free income.

> But I assume the interest on a home-secured HELOC over $100K should
> continue to be deductible if one is retired, 70+, living on withdrawals
> from tax-deferred IRAs (non-annuitized), and using occasional
> withdrawals from that HELOC to supplement the mandatory minimum
> withdrawals each year? -- objective of this exercise being to keep
> maximum amount exarning in the tax-deferred IRA accounts.

I believe you assume incorrectly. Interest on home equity debt in excess of
$100,000 is not deductible under any circumstances unless it qualifies as
investment debt, which your scenario does not.

A side note of thanks to Elle for correcting my earlier response. They sure
managed to hide that one, both in the Pub and in the Code.

--
Phil Marti
Clarksburg, MD

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by joetaxpayer on March 31, 2008, 5:26 pm
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Elle wrote:
>
>>I remarked to someone that I was pretty sure that one
>>cannot borrow money (and deduct the interest) if the
>>proceeds are used to buy tax-free bonds or tax free bond
>>funds. I am certain that at one point in time that was
>>true, but now I am unable to find a reference to an IRS reg
>>stating this. Can someone confirm this with a reference I
>>can pass along?
>
>
> Pub. 936, page 4 confirms what you say. Specifically, a
> HEL's interest is not deductible if one uses the proceeds of
> the loan to buy securities or certificates that produce
> tax-free income.
>
> I see the IRS web sites I cited earlier in another thread do
> not explicitly include this exception. One has to read Pub.
> 936 for the fine print.

Beautiful. My thanks, as always, Elle.
Joe

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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