deductible mortgage interest

[POCAHONTAS]

client bought house in 2002 for $165,000
took out a loan against the house for $83,564 in 2005

took out another loan against the house in 2006
the good faith estimate says (2006)
total purchase price/payoff is $363,600
base loan amount is 400,000

client absolutely cannot find settlement statements for any of the years, All I can go by is the good faith estimate for 2006 and truth in lending disclosure statement for 2005.

client tells me loan for $83,564, was for paying of credit card debt etc
the loan in 2006 was to home improvements

The question is how do I figure deductible mortgage interest for 2008, anyone have a formula I can use??
thanks

[POCAHONTAS]

oh and I asked her to contact the escrow companies to have the closing statements faxed to me, she has no clue which escrow companies they were. We tried calling the banks but no luck there either.

[Gretel]

Are you saying he made improvements for $400,000? Before I would consider this amount, or any amount for that matter, I insisted on the loan papers (have him get copies) and also on documentation for home improvements.

He is fine up to $100,000 for equity loan and it appears - if everything is true - he is under this limit.

[solomon]

Off hand:

Original acquisition debt - 165,000/400,000 = 41%

Home Equity (AMT) debt - 83,564/400,000 = 21%

Improvements (I guess) - 151,436/400,000 =38%

If the 151,436 is for improvements, then all the interest should be deductible with 21% of it subject to AMT.

[POCAHONTAS]

thanks solomon

Original acquisition debt - 165,000/400,000 = 41%

except my understanding was "refinanced home acquisition debr is treated as home acquisition debt up to the amount of the balance of the old mortgage principal just before the refinancing so therefore $165,000 would not be divided by 400,000 and it would be the balance of the mortgage just before the refinancing that would be divided by $400,000 correct??

of course in this case we do not know the balance just before refinancing so what you are saying is that we would have to use the original acquisition debt right?

[solomon]

thanks solomon

of course in this case we do not know the balance just before refinancing so what you are saying is that we would have to use the original acquisition debt right?

This is what I do as it is virtually impossible to keep up with the refinances with most clients.

[POCAHONTAS]

thanks solomon your help is highly appreciated

[solomon]

thanks solomon your help is highly appreciated

Not sure if it is correct, but that is what I do in absence of other information.

[DonPriebe]

But the original posting said ..

client bought house in 2002 for $165,000
took out a loan against the house for $83,564 in 2005

So why isn't the Original acquisition debt ZERO? All the debt seems to be home equity debt except the unspecified amount that was spent on improvements.

[POCAHONTAS]

don

why and how would the original acquisition debt be zero??

[S T]

Acquisition Debt

P-

You don't say what the original acquistion debt was in 2002, only that the purchase price was $165,000. Was the original loan $165,000 so then the acquistion debt is $165,000 less all of the principal payments.

Was the $83,564 to pay off the acquisition debt, or was the $83,564 a 2nd loan such as a Credit Line or a 2nd? I believe Don is thinking that the $83,564 paid off the original acquistion debt? Or the t/p paid cash for the house in 2002 and then took out a credit line or 2nd in 2005

Then the refinance for $400,000, did that pay off the original $165K, the $83,564 and then also draw additional funds which the t/p is stating went to home improvements.

Sandy

[POCAHONTAS]

I am sorry I meant acquisition debt not the purchase price
so acquisition debt = 165000

$83,564 was the 2nd loan and did not pay off the acquisition debt

yes the $400,000 refi did pay off the original loan, the $83,564 and draw extra funds for home improvements