Here are the facts: T/p moves into home in 2010 and then moves to another State in 2013. In 2014 this home was rented since it couldn't be sold right away. Sold in 2015. T/P meets the 2 out of 5 years requirement for excluding gain (other than depreciation). This is not the issue.
The issue is the deduction of the mortgage interest and if the house qualified as second home when sold, thereby allowing mortgage interest deduction on as second home on Schedule A. What complicates the issue is that T/P took out some equity through refi. While it might be a possibility to deduct the mortgage interest as investment interest, the extra equity $$ taken out certainly would not qualify if home is not considered second home at sale.
My rationale is that if this is considered a home for the 121 exclusion it probably qualifies for home mortgage interest deduction. Looking at the length of home used as home it's 3 years used as home, 1 year sitting empty, 1 year rented.
What would you do with the mortgage interest? What would you do with the equity part of the mortgage?
The issue is the deduction of the mortgage interest and if the house qualified as second home when sold, thereby allowing mortgage interest deduction on as second home on Schedule A. What complicates the issue is that T/P took out some equity through refi. While it might be a possibility to deduct the mortgage interest as investment interest, the extra equity $$ taken out certainly would not qualify if home is not considered second home at sale.
My rationale is that if this is considered a home for the 121 exclusion it probably qualifies for home mortgage interest deduction. Looking at the length of home used as home it's 3 years used as home, 1 year sitting empty, 1 year rented.
What would you do with the mortgage interest? What would you do with the equity part of the mortgage?