If taxpayer refi'd on home mortgage (remaining balance on initial loan $150,000) for $319,000 and used $160,000 of the refi money to invest, could taxpayer elect to treat the $160,000 as not secured by home so that all interest that pertains to the $160,000 would be deductible as investment interest as long as there is investment income to match the investment interest deduction? Secondary question is can you elect to just take a portion of the debt as not secured by home, i.e., on the $319,000 loan, keep $159,000 as mortgage debt and the remaining $160,000 as not secured by home or is it a "all or nothing" election??
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Pub 17
As long as he can trace it, he can split the loan as part Sch A & part business. Pub 17, pg 157, "Allocation of Interest". Also references Chapter 4 of Pub 535.
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However, he cannot arbitrarily change treatment as investment interest as he sees fit from year to year. Once chosen it can only be changed if use of funds is changing, f.e. if home is converted to rental.Comment
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Home Mortgage Int.
The taxpayer used the $160,000 to invest in stocks and mutual funds; her financial advisor advised her to take the equity from her home to invest. I would say a little risky in this economic climate, but that is what she did. I just want to make sure that I can split up the interest between home mortgage interest and investment interest if loan was secured by house. If "tracing rules" is available, what is the advantage of "electing" not to treat home mortgage debt as secured by home? Input is appreciated!!!Comment
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Advantage depend on use of funds.
In your case max. $100,000 is deductible as home mortgage interest as equity debt maybe even less if the original balance already included equity debt.Comment
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