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Posted by A.G. Kalman on June 17, 2006, 9:05 pm
Please log in for more thread options Bob Sandler wrote:
>> I am aware of the $100,000 limit on the deductibility of
>> interest for home equity loans. My question is if I were
>> planning on obtaining a single home equity loan for, say,
>> $110,000, would the $10,000 excess prevent me from deducting
>> the interest otherwise allocable to the $100,000 principal
>> amount? In other words, would I need to get one home equity
>> loan for $100,000 and a second separate loan (unsecured or
>> otherwise) for the remaining $10,000 in order to preserve
>> the deductibility feature for the mortgage interest on the
>> $100,000 loan? I have asked several people and have not
>> gotten a clear answer. Any advice would be greatly
>> appreciated as I finalize my financing plans.
> You can, and should, take one loan for the total amount.
> Each year, you will use Table 1 in Part II of IRS
> Publication 936 to calculate how much of the interest is
> deductible.
>
> Note that the $100,000 limit applies to the current balance
> of the loan, not the original amount. As you reduce the
> outstanding balance by making payments, a larger proportion
> of the interest becomes deductible. When the remaining
> balance drops below $100,000, all of the interest will be
> deductible. Table 1 and the accompanying instructions in
> Pub. 936 take this into account.
Also note, that if you have home acquisition debt and/or
grandfathered debt, your qualified home equity debt is the
lesser of $100K or the FMV of the home less the acquisition
and grandfathered debt. This is remote, but there are
situations where home equity loans are granted and total
home debt exceeds FMV.
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