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Posted by Elle on March 28, 2008, 10:38 pm
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> Are you referring to the point 3.6 on the IRS website? I
> think my question, putting another way, is whether "paying
> down
> mortgage" can be classified as "buy, build, or
> substantially improve
> your home"?
Yes, I am looking at point 3.6. I suggest reading all of it.
For HELs, it refers the reader to
http://www.irs.gov/publications/p936/ar02.html#d0e2135 .
Both of these note that there may be a limit to how much of
the HEL's interest you may deduct. They explain the limit.
My impression is that it does not matter what you use the
HEL for. The bigger issue for you may be the limit I mention
above.
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Posted by joetaxpayer on March 28, 2008, 11:27 pm
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My interest wrote:
>
>>
>>
>>> Also, what document / evidence should I
>>>keep to fence off IRS if it challenges me on my deduction?
>>
>>http://www.irs.gov/faqs/faq-kw96.htmlanswers your question
>>and with IRS references.
>>
>
>
> Thanks. Are you referring to the point 3.6 on the IRS website? I
> think my question, putting another way, is whether "paying down
> mortgage" can be classified as "buy, build, or substantially improve
> your home"?
Elle's link was good, that refers you then to pub 936. See page 8,
middle column, "refinanced home acquisition debt"
"Any secured debt you use to refinance home acquisition
debt is treated as home acquisition debt. However, the new debt will
qualify as home acquisition debt only up to the amount of the
balance of the old mortgage principal just before the refinancing. Any
additional debt not used to buy, build, or substantially improve a
qualified home is not home acquisition debt, but may
qualify as home equity debt (discussed later)."
I'm pretty certain this covers you. But to your point, keep a paper
trail. Very simple to show a mortgage balance of $200K one day, and the
other loan of $200K the next.
Joe
www.blog.joetaxpayer.com
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<< ------------------------------------------------------- >>
<< 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. >>
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Posted by D. Stussy on March 29, 2008, 12:07 am
Please log in for more thread options > If I borrow $200K home equity line of credit to (partially) pay down
> my mortgage. Can the interest on the line of credit fully deducted?
>
> IRS website indicates if the loan is used other than build / improve
> your home, you can only deduct interest on up to $100K.loan.
>
> So I think the answer to my question above is yes. But can anybody
> either confirm or reject it? Also, what document / evidence should I
> keep to fence off IRS if it challenges me on my deduction?
Please don't post the same question to multiple groups.
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<< 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. >>
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Posted by My interest on March 31, 2008, 11:08 am
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>> The IRS is correct here - in that home equity loans are specifically limited
>> to $100k of principal for the interest to be deductible - and that's in the
>> statute. Undre that, if you borrow $200k, then only 50% of your interest is
>> deductible.
>>
>> I see what you're saying in that you're trying to use the credit line as a
>> substitute for acquisition debt. If that's really what you're trying to do,
>> you should refinance the acquisition debt and not try to be sneaky. Also,
>> it seems that such a use may violate the terms of your credit line.
>>
Well, I want to lower my cost but I don't think I am trying to be
sneaky. The bank is not really passing through the benefit of lower
interest rates to us as consumers. Given the 3% cut in FedFund rate,
how much % mortgage rate has been cut? (Well, banks will always give
you some "reasonable" technical explainations and I know what they
will say - I am working in the financial industry myself).
Actually I am not sure why you say it may violate the terms of my
credit line. When I applied the credit line, one question on the
application form was "do you intend to pay down / off your current
mortgage". To me, this implies paying down mortgage is one of the
possible/valid reasons to apply the credit line.
>>
>> If you were to take the position that the equity line of credit was used for
>> acquisition debt, I bet the IRS would fight that to the Tax Court if not
>> beyond.
This is indeed the reason for my original question. I am using the
line of credit to pay down my mortgage (i.e not playing tricks to pay
for things like vacations etc). None of the IRS FAQ I found covers
exactly my case. I would guess the closet example is either a
refinance (can my case be treated as partially refinance by a line of
credit) or may be an acquisition cost (what IRS will think if I used
the line of credit to buy another house? If it has no problem with
that, why do you think it should bark if I use the money to "pay" for
my current house?)
Thanks.
--
<< ------------------------------------------------------- >>
<< 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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