Mortgage Interest

[peggysioux]

Taxpayer refinances home mortgage in early part of 2015 and takes out $175,000. Taxpayer is using $125,000 to gift to children and the remaining $50,000 is put in saving to apply to home improvements but home improvements have not commenced. Can the $50,000 still be considered acquisition debt or is there a time period that the improvements need to be done after the refinancing of the home in order to be considered acquisition debt?

[DonB]

Taxpayer refinances home mortgage in early part of 2015 and takes out $175,000. Taxpayer is using $125,000 to gift to children and the remaining $50,000 is put in saving to apply to home improvements but home improvements have not commenced. Can the $50,000 still be considered acquisition debt or is there a time period that the improvements need to be done after the refinancing of the home in order to be considered acquisition debt?

Takes out the loan early in 2015 and has not yet made improvements-- To me it's all personal home equity debt, not acquisition debt.

[taxea]

allocate the home improvement portion as deductible interest...but not until the funds are used for that purpose. The balance of the "gift" interest is not deductible as mortgage interest.

[Roland Slugg]

$100,000 of the new loan's principal is a home equity loan, so the interest on $100,000 of the $175,000 is deductible. If some of the proceeds are eventually used for actual home improvements, then that portion will become a home acquisition cost, and more of the loan's interest will become deductible as qualified residence interest. See Code §163 and related Regs.

[peggysioux]

Thanks to all.

Peggy Sioux