Refi of Personal Residence

[pmedders]

Client refi'd personal residence in May 2005 and took out an additional $91,000. When asked what that money was used for to determine how interest should be handled, I was advised that money was taken out to buy a board and care business, but as of April 2006, money still in bank. They also refi'd a residential rental and there was a loan that was paid off in the refi from an equity loan of $99,708. When asked what was the $99,708 used for, I was advised the $99,708 was used on their primary residence. Thus their acquistion debt is at the FMV or more of the home, so basically no equity debt would be deductible.

So my question is of the $91,000 waiting to be used to apply to a business investment, should I claim as investment interest expense up to their investment income or just personal interest?

I have had so many clients this year that have maxed out their mortgages with refi's that mortgage interest is limited, but it is like pulling teeth to get the details from the client.

[JG EA]

Me too.

I was advised that money was taken out to buy a board and care business, but as of April 2006, money still in bank.

This is under the $100,000 equity line, but you say the equity would make it go over the FMV and so nothing to be done.If they use it for business then you could trace it to the business, but is not for any business yet.

They also refi'd a residential rental and there was a loan that was paid off in the refi from an equity loan of $99,708. When asked what was the $99,708 used for, I was advised the $99,708 was used on their primary residence.

This is a common problem with one of my clients. NO DEDUCTION.

So my question is of the $91,000 waiting to be used to apply to a business investment, should I claim as investment interest expense up to their investment income or just personal interest?

Just personal as far as I can see.

I have had so many clients this year that have maxed out their mortgages with refi's that mortgage interest is limited, but it is like pulling teeth to get the details from the client.

Yes, and don't forget the AMT. You can't count all those refi's there either. I have another client that refi's every year. But, anything that's not buy,build, improve is not allowed for AMT - hitting many people.

Isn't it amazing how little they remember. But not too amazing when I think of how little I remember.