Home Equity Loan used to Buy 2nd Home

[equinecpa]

Client used a home equity loan to purchase 2nd home. The balance on the note is approximately $200,000.

Does this qualify as home acquisition debt? My gut reaction was that this is a HEL and interest is only deductible on the 1st $100,000. But then reading the taxbook:

Acquisition Debt: Mortgage taken out to buy build or substantially improve a main or second home,
Total Acquistion debt on main and 2nd home is limited to 1 million.
Limit is reduced by any grandfathered debt
Debt over the limit may qualify as home equity debt.

Well wouldn't the HEL meet all of the above (combined debt is less than 1 million) and be home acquisition debt? This does qualify as home acquisition debt doesn't it?

[appelman]

From Pub. 936:

"Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home (your main or second home). It also must be secured by that home."

That would seem to rule out the use of a loan secured by one home to buy another one.

[Gretel]

I agree. The very same home you want to use to claim as acquisition debt must be used to secure the loan.

You might want to ask if the second home was also used as security. I have a client where the bank used both homes.