On Saturday there was a post on the other board that went like this. In a calendar year, TP owned houses A (residence) and B (seciond home). The he sold A and bought C (residence). Can he deduct interest on all three or just two. Reading Pub 936 it appreared to me that the answer is only 2.
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Pub 936 states that "You can have only one 'main home' at ony one time."Originally posted by Mark Goldberg
Also, "If you have more than one second home, you can treat only one as the qualified second home during any year. However, you can change the home you treat as a second home during the year in the following situations...If you get a new home during the year, you can choose to treat the new home as your second home as of the day you buy it."
Treasury Reg 1.163-10T(o)(5)(iv):
"A taxpayer may not elect different residences as second residences at different times of the same taxable year except as provided below - (A) If the taxpayer acquires a new residence during the tax year, the taxpayer may elect the new residence as a taxpayer's second residence as of the date acquired."
It seems this might be getting more complicated than it needs to be. If by "residence" you mean "main home," of course you can deduct interest, etc., when you buy a new main home (assuming you move in and treat it as your main home). If A was the main home, then the taxpayer purchased C as a main home, it's all deductible and that doesn't affect the deductibility of the second home, B.
If the second home was rented out, other rules apply.
Remember that a taxpayer can have only one main home at any one time. The way I read the regs, it's fine to switch main homes during the year if you buy a new one and move in, it's fine to switch second homes during the year if you buy a new one, but you can't switch classification from main home to second home during the year (unless the facts support it). You cannot deduct interest on two main homes at the same time, or two second homes at the same time.Last edited by Armando Beaujolais; 09-04-2005, 11:18 AM. -
Confused
Armando,
I found your response to be confusing. Let me clarify the question. The taxpayer switched main homes by selling one and buying another. At all times he had a second residence. So the question is does a main and an an additional home mean two physical buildings, in which case the interest on one of the main homes is not deductible, or does it mean you can deduct interest on more than two as long as you never owned more than two at any time?Comment
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Mortgage Interest
If taxpayer owned personal residence (main home A) say from January thru June 30, then sold home A. Mortgage Interest deductible for that period.
Taxpayer then purchases personal residence (main home C) July 1 and owns through end of year 12/31, Mortgage Interest deductible for that period.
Taxpayer did not own more than one main home at anytime throughout the calendar year.
Taxpayer owned second home (Home B) for entire year. Mortgage interest deductible on Second Home for entire year.
If Taxpayer owned main home A from January thru 7/31 and purchased main home C July 1 and owned thru 12/31, there would be an overlap of mortgage interest on the Main Homes. Therefore you could not deduct one months of interest on ONE of the Main Homes. This scenario might happen if the escrow closings were not simualtaneous.
Taxpayer can deduct mortgage interest for one main home (taxpayer can change main home, such as a sale) and one 2nd home.
SandyComment
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To take this a little further what would happen in the following scenario. Two people each own a main home and a second home for which they are eligible to deduct interest. If they get married during the year (say in June) could they deduct the interest on all 4 homes for the period prior to marriage (June).Comment
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The regs are clear that you can buy a new main home and pick up the deductions; and you can buy a new second home and pick up the deductions. I think the question here is whether you can deduct expenses on your old main home, basically saying the old main home is now a second home.Originally posted by Mark Goldberg
I don't think so the way the regs read. If you purchased a new second home, you could switch to the new second home to deduct expenses. However, in this case, you didn't purchase a new second home. You acquired a second home by moving out of it, making it no longer your main home. Now you have a new main home, and a second home you did not purchase.
That's the way I read the regs, but I'm interested to see other material that might be out there.Comment
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Armando, I am now confused
Okay, What mortgage interest is deductible?I don't think so the way the regs read. If you purchased a new second home, you could switch to the new second home to deduct expenses. However, in this case, you didn't purchase a new second home. You acquired a second home by moving out of it, making it no longer your main home. Now you have a new main home, and a second home you did not purchase.
Taxpayer has Main Home A, Second Home B. (Mortgage interest deductible on each)
Taxpayer converts Main Home A to Second Home and purchases new Main Home C. (Based on what you are saying Main Home A converted to Second Home would not be deductible, but Second Home B would still be deductible and New Main Home C would be deductible)
What happens if Second Home B is converted to Rental, is Main Home A converted to Second Home still does not have deductible mortgage interest?
Seems Like Pub 936 says that you can switch Second Homes and even Main Homes back and forth??
SandyComment
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"Treasury Reg 1.163-10T(o)(5)(iv):
"A taxpayer may not elect different residences as second residences at different times of the same taxable year except as provided below - (A) If the taxpayer acquires a new residence during the tax year, the taxpayer may elect the new residence as a taxpayer's second residence as of the date acquired."
The way I read it you can switch your second home only if you BUY a second home. If you move out of Home A, that can't become your second home under these rules because you didn't buy it.
The regs say you can't have more than one second home during the year. Exception: Buying a new second home. That's not what happened here.Comment
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