Mortgage Interest On Rental Property

[Dude]

We are not communicating directly with the client here. We only know what the original poster told us. Why are you making things up? You stated, "They used it to buy a second home they decided to rent out.". That is not the fact as stated.

You have the critical thinking skills of the home depot associate who thinks customers enjoy having the back of the box read to them. So if a client does not realize their RV can be called a vacation home you are not going to suggest it?



You see, there was new law commonly referred to as TCJA. Here, let me quote you a part, since your tax update CE seems to be sorely lacking:

SEC. 11043(a). Limitation on deduction for qualified residence interest. " Section 163(h)(3) is amended by adding at the end the following new subparagraph: “(i) IN GENERAL.—In the case of taxable years beginning after December 31, 2017, and before January 1, 2026—

“(I) DISALLOWANCE OF HOME EQUITY INDEBTEDNESS INTEREST.—Subparagraph (A)(ii) shall not apply."

It qualifies if you can call it a second residence. I already pointed out how she can do this and simultaneously take the home equity interest on schedule A. Sometimes our job requires more than data entry.

[Gene V]

Yes, but from what I understand, the "election" is to just report it as non-home interest. In other words, reporting the interest on Schedule E satisfies the "election".

If that is true, that makes it a lot easier, I thought you would have to have a written election and attach it to your return.

Thanks

[nwtaxlady]

It qualifies if you can call it a second residence. I already pointed out how she can do this and simultaneously take the home equity interest on schedule A. Sometimes our job requires more than data entry.

DUDE, I disagree! New rules under TCJA, now the 2nd home has to be secured by the 2nd home. It has to have its own loan. Can NOT be secured by the personal residence. Yes, they can have a 2nd home, however, the 2nd home has to be secured by the 2nd home. Can not be secured by the personal residence. I have been to several tax seminars that stated this.

[Dude]

DUDE, I disagree! New rules under TCJA, now the 2nd home has to be secured by the 2nd home. It has to have its own loan. Can NOT be secured by the personal residence. Yes, they can have a 2nd home, however, the 2nd home has to be secured by the 2nd home. Can not be secured by the personal residence. I have been to several tax seminars that stated this.

Do you have a link to your source? Here is my source https://www.irs.gov/publications/p93...link1000229902 IRS has issued guidance on adding both mortgages together for the purpose of them not exceeding the $750k max. I do not understand why they would do that if the second home is not allowed to be secured by the first home.

[Lion]

Straight from the horse's mouth, see the IRS's Example 2:

https://www.irs.gov/newsroom/interest-on-home-equity-loans-often-still-deductible-under-new-law

[Anarchrist]

tell me how someone with a loss would pay less tax by taking unused interest on schedule A.

Gee, how would not taking a loss (thus increasing agi) so you can take only a portion of the deductions on schedule A increase total tax? It's called basic math. When taxable income increases, income tax goes up. Nowhere in the op does it state the interest would be unused. In fact, the op specifically states it would be used.

[nwtaxlady]

Do you have a link to your source? Here is my source https://www.irs.gov/publications/p93...link1000229902 IRS has issued guidance on adding both mortgages together for the purpose of them not exceeding the $750k max. I do not understand why they would do that if the second home is not allowed to be secured by the first home.

YES I DO! https://www.irs.gov/newsroom/interes...-under-new-law

Look at example 2 it states that taxpayer took out equity on main home to purchase a vacation home then the interest on the home equity loan would NOT be deductible.

It only works if each home has its own loan and under the $750,000.

[Dude]

YES I DO! https://www.irs.gov/newsroom/interes...-under-new-law

Look at example 2 it states that taxpayer took out equity on main home to purchase a vacation home then the interest on the home equity loan would NOT be deductible.

It only works if each home has its own loan and under the $750,000.

But this isn't a vacation home. It is a second home that is used as a rental but as stated originally, could be converted back to personal use if lived in for more than 10% of the days held out as a rental.