Mortgage Interest

[Acownt4it]

I am chasing my tail and it is getting late…

TP owned a house with an average mortgage of $622,390, he also owned a second home with a mortgage of $985,000. I know based on this, the mortgage interest he paid on these homes ($50,010) is limited to the $1,000,000 home equity debt limit. The problem is this:

He sold both homes in 2006 and got remarried November 2006.

New wife had a home with a mortgage of $600,000 but sold it in April. Mortgage interest of $14,612.53, then-----

They built a home with a combined 1st & 2nd mortgage of $1,664,000 in May. The new home is titled in the wife's name only. Again, I know this falls into the rules of the home equity debt limit, but I am not sure what to do with the rest of this mess.

At no time has both of their names appeared on the same house.

Can his second house be considered an investment property? He never lived there. He bought it for his ex-wife in lieu of alimony. Then she sued him and he had to short-sell it and lost $100,000 before it went into foreclosure.

On one hand I am thinking I should file them MJS, which I will compute after all the rest of the mess is entered but,

Is the wife’s old house considered a third home therefore not eligible for the mortgage interest deduction? Or

Is the wife’s old house and new house (only in her name) considered the primary house and the husband’s two old houses are also qualified for the deductions? Or am I way off base on all of this?

Thanks for you help.

[S T]

You are not alone

Noel,

Just know that you are not alone on this issue. I have a similar issue with mortages in excess of the $1M but not quite the same scenario, and not a divorce and marriage in between.

So I will also be watching for responses to your post. I have been chasing my "tail" for the last 3 days trying to figure it out.

I had posted earlier on this issue as well, but not much response.

Sandy

[veritas]

the cap

is one million original aquisition debt and 100 thousand as equity debt.

[S T]

Thanks

Veritas,

Thanks for verifying that, I had posted $1.1 on another post,but response came back $1M.

I had thought it was $1M on acquisition and $100K on equity.

Can you shed any more light on how to treat these. I think Noel is in the same position as I am on a taxpayer. Combined amounts for the part of the year exceed either limit, can we pick and choose which loans to take deductions on or are we to take averages?

In my case and probably Noel's the first 6 months have 2 homes (due to one being for sale and acquiring a new personal residence), then the last 6 months only have the one residence as the 1st one was sold.

So the first 6 months of 2006 is the problem as I am over the $1M. T/p lived in the first home only til 4/06 then moved to the 2nd home and 1st home was in escrow waiting for sale and vacant.

Seems like someone could have made these rules easier and more clear and concise on how to figure.

Thanks to anyone that can shed light on either Noel's or my t/p issues.

Sandy

[veritas]

Sandy

I would say in your case you will be limited to the 1.1 million. After the sale did the mortgage(s) drop below 1.1 million?

[veritas]

In Noel's case

I'm wondering if the payments on the ex-wifes home are ordered pursuant to a divorce decree? If so the payments could be considered alimony.

[Acownt4it]

Alimony

is definately a consideration, but then the ex has to claim the income and I am not sure my client wants to do that to her.
I was also thinking that that home could have been considered investment property and not take any of the mortgage interest, but take the $100,000 loss on the property when sold in a short-sale.

Because TP got remarried in 2006, does that mean that we lose out on the new wife's interest as well because there are three houses involved?
Is that what I am understanding in the prior posts? It is $1.1/M regardless of who the houses were titled to and when the marriage happened? Because new wife did it right, sold a house bought a house. It is the husband with his two houses that are messing with my mind.
Hope this makes sense, it is 11:30 here and I am really tired.
I will check the posts in the a.m. I am going home to catch a couple zzzzzzzz.

[S T]

Limit

Noel,
Isn't the limit 2 homes, so depending on the time frames of the selling etc, your t/p could be limited to only the mortgage interest on 2 homes, 1st and 2nd, whichever those homes are. I don't think the ex spouse's mortgage could be considered investment property.

Not knowing the real times frames and who owned what when, would it be possible to consider filing the t/p and the new wife as MFS, would they be able to maximize some of the mortgage interest that way? Or is there still a limit on MFS to $1mil + $100K. I haven't looked up that part of the regulations.

How are you going to treat the sale on the ex-wife's home? was ex-wife on the loan, if so, could your t/p issue the mortgage payments as alimony if stipulated by divorce decree, and then the ex wife claim the mortgage interest to offset, would the receipt of alimony and payment of mortgage interest (paid in behalf) be qualified?

I don't know, just throwing out some thoughts, as I am also so confused on this mortgage interest issue.

Noel, I think your issue is much more complicated than mine.

But a great post!

Sandy

[S T]

Yes

In Jan 06 mortgages were $800,000 on 1st home and $997,500 on replacement home (which I guess has to be shown as 2nd home) Moved to 2nd home 4/06, 1st home escrow closed and sold 6/15/06.

In June 06 when the 1st home was sold, that relieved a lot of mortgage liability and then with the proceeds, t/p also paid off the second mortgage on the 2nd home which is now primary. So loan amounts as of 7/06 were approximately $749,500.

Thanks for your help as well as your post to Noel (hers is worse than mine)

Sandy

[Kram BergGold]

Try This

Think of things month by month. In every month deduct interest on up to 1.1 million of debt on two homes. It is really that simple.

[LawrenceGR]

What about the time limit

I didn't really read through all the posts but isn't there a rule about having to live in the house for 2 years? I thought that was a requirement to avoid the cap Gain.

[skhyatt]

is one million original aquisition debt and 100 thousand as equity debt.

Veritas, is that 100K or fmv-org prin bal whichever is less?

[S T]

Thought

Noel,

Do you have CFS Tax Tools? They have a worksheet for Qualified Loan Limit and Deductible Mortgage Interest. You enter the balances, interest, # of months, then it caluclates average balance, and deductible amount.

Sandy

[JG EA]

Title?

Noel,

Do you have CFS Tax Tools? They have a worksheet for Qualified Loan Limit and Deductible Mortgage Interest. You enter the balances, interest, # of months, then it caluclates average balance, and deductible amount.

Sandy

What is the title of this worksheet - I can't seem to find it.

Thanks,

[S T]

Do you have CFS Tax Tools

CFS Tax Tools - open the Module Library to Type: All Types, then scroll way down past all of the Form #'s, to "Qualified Loan Limit, Deductible Mortgage/AMT Interest Limits. The one above is "Qualifying for a Home Purchase". Or you can do a Find Module "Qualified Loan Limit"

Once in the module you can also go "Help" and Instructions/Module Overview, there is a very detailed explanation!

This is what I just used on the prior post, and I was so surprised!

Sandy