Discussion:Something in the Water? Acquisition Debt, Mortgage

I thought I read Riley's seal of approval on such an approach but after some search could not put my fingers on it. Perhaps some enterprising person will put together Riley's postings, indexed by subject matter, after the rush is over.

Hey, as it is it took me 20 minutes to explain to them tonight why I want them to use it personally ['oh but every time we go it is to do work on it' as they try to tell me what they think I want to hear]

• 367K = Acquistion debt on residence
• 280K = Equity out to purchase mixed use property.

Whatever comes back to Sch A is equity interest. Like using the equity in your residence to purchase a 2nd home.

If more than 35% of the interest on the $280K comes back to the A, then they have some non-deductible equity interest.

But, since they are in AMT, it sounds like everything coming back to the A will be non-deductible on the Fed return.

Refer them to H&R. They won't ask these silly questions.

pub 936

Mortgage proceeds used for business or investment. If your home mortgage interest deduction is limited under the rules explained in Part II, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 2 near the end of this publication. It shows where to deduct the part of your excess interest that is for those activities. The Table 1 Instructions for line 13 in Part II explain how to divide the excess interest among the activities for which the mortgage proceeds were used.

good luck

280k acquisition debt of original home (sch a)
100k non acquisition debt(sch a)
267k as elected business debt on sch e. as described in pub 936
I assume rental is a loss and a loss on sch E will only be deferred based on their income.

The $647K is on his residence, right?

What amount of this $647K is considered acquisition debt on that residence, and what amount is being considered acquisition debt on the new mixed use property?

-If the re-fi on the principal residence equity money was used to purchase the rtl pty doesn't the 163-10T election need to be made, which I've seen taken as an all or nothing kind of thing. Curiously, Pub 936 mentioned in the strand doesn't even mention 10T. Also the Pub 936 Table 1 line 13 instructions example comes up with only $15,000 in interest for Schedule C after stating that mortgage B was allocable to business for the entire year and had $16,000 in interest.
-How do we qualify tha tax court method under vacation property rules to allocate personal use mortgage interest back to Schedule A after we've made an election to treat the debt as not secured by the principal residence. Is there an exception somewhere?
-Browsing the regs came across 1.163-10T(f)(2)Special Rule for Real Property for purposes of determination of qualified residence interest when secured debt exceeds acquisition debt. In other words, the at the time limit on deductible equity debt. (Hard to tell which parts of old regulations are in effect or not in effect). What this says is the FMV can not be lower than the adjusted purchase price, essentially purchase price plus improvements. I wonder how this bears in relation to the usual thinking on the FMV figuring in sec 163(h)(3)(C)on home equity indebtedness.

mention of 10T in so many publications and on this board if it's not applicable?

Then we go to Harry quoting the o5 election. The o5 election itself is obviously tarnished, or at least by the example given. In (ii) reference is made to adjusted purchase price of $40,000. Then, further on, after saying the election on debt B was made it says the applicable debt limit on debt C is $25,000. This is obviously not the case because, under current law, the applicable debt limit (not called that anymore) would be $60,000 (FMV $75,000 less $15,000). Wrong again because it's saying average balance, not the balance of acqisition debt at the time of re-fi etc..So that may mean, maybe the words in (5) still mean something, but not the example given.

So, do we need 10To5 at all. Should be simple, loan/mortgage proceeds are used on what they're used on, and deductible or not based on what they're used on. Then, home mortgage interest has interest on acquisition principal plus on maximum allowable equity.

Excellent observation!