Ranch - Home Mort. Interest Vs Business Interest

[peggysioux]

Client purchased a ranch by refi'ing his primary residence and borrowing an additional $330,000 with debt being secured by his home. He also took out another loan with debt being secured againt ranch. I think it would be advantageous to treat the $330,000 debt secured by his primary residence as not secured by home so interest can flow to Schedule F. Is there any disadvantage in handling the loan as not secured by home? Any input appreciated. I know it is crunch time for everyone!!!!!

[peggysioux]

More info

to my original post - There is a house on ranch property that client's parent stay in, so could be deemed as second home. There is also about 100 acres of property; client is farming much of the acreage, and client is working on changing zoning on another piece of the acreage into commercial property. Just want to make sure I set up correctly to begin with so that there are no problems down the road.

[Joe Btfsplk]

Allocation of interest

If the interest is on a mortgage covering both the residence and the Farm land, then the interest should be allocated between Sch A and Sch F proportionate to the land value vs the residence value. A part of the land value--maybe one acre--could be considered part of the home value.

I have handled this type situation by using the Tax Assessor-Collector's assessed values to compute the ratio.

[peggysioux]

Ranch - Home Interest Vs. Business Interest

In order to carry the interest to the Schedule F, don't you have to make the election to treat the debt as not secured by home? Also, my concern was once election is made, election cannot be revoked without IRS consent. Just wanted to see if there could be any disadvantages down the road in making the election. Any input appreciated.

Thanks!!

[equinecpa]

I thought I'd add on to this thread now that the rush of tax season is over.

I have always allocated mixed use mortgages between Schedule A and F. Yet after reading Pub 936 and Pub 225 I'm not so sure this is correct. It does say that mortgages secured by home acquisition debt are to be deducted on Schedule A, unless elected otherwise.

So I guess the question becomes if an individual purchases 100 acres of land with dairy barn, and outbuildings along with a house he uses as a principal residence, is this a mortgage secured by home acquisition? Or Is it a mixed used mortgage?

Carolyn