Interest On HELOC of $110,000 Deductible?

[njoracle]

I understand that the interest on a Home Equity Loan is deductible if the loan
is less than $100,000. So the questions are:

1. If the HELOC goes to $110,000 does that mean all of the interest associated
with the loan cannot be deducted or is it that just the interest associated with
the $10,000 over $100,000 can't be deducted?

2. If the HELOC is $110,000 on Jan 1 2016 but $99,000 by Jan 31, 2016, can all
of the interest be deducted?

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[njoracle]

njoracle wrote:
> I understand that the interest on a Home Equity Loan is deductible if the
> loan is less than $100,000. So the questions are:
>
> 1. If the HELOC goes to $110,000 does that mean all of the interest
> associated with the loan cannot be deducted or is it that just the interest
> associated with the $10,000 over $100,000 can't be deducted?
>
> 2. If the HELOC is $110,000 on Jan 1 2016 but $99,000 by Jan 31, 2016, can
> all of the interest be deducted?
>

I figured it out using the worksheet on IRS worksheet associated with
Publication 936. After calculating the Average Mortgage Balance to be $104,500,
it looks like I can deduct about 95.7% of the interest.

[Arthur Rubin]

On Sunday, November 22, 2015 at 5:31:43 PM UTC-8, njoracle wrote:

> I figured it out using the worksheet on IRS worksheet associated with
> Publication 936. After calculating the Average Mortgage Balance to be $104,500,
> it looks like I can deduct about 95.7% of the interest.

You can use a monthly average, if it produces a smaller average balance. In fact, you can use any "reasonable" averaging method, including those not listed in Publication 936.

--
Arthur Rubin
CRTP, AFSP in Brea, CA

[njoracle]

Arthur Rubin wrote:
> On Sunday, November 22, 2015 at 5:31:43 PM UTC-8, njoracle wrote:
>
>> I figured it out using the worksheet on IRS worksheet associated with
>> Publication 936. After calculating the Average Mortgage Balance to be $104,500,
>> it looks like I can deduct about 95.7% of the interest.
>
> You can use a monthly average, if it produces a smaller average balance. In fact, you can use any "reasonable" averaging method, including those not listed in Publication 936.
>

Good to know. I can easily calculate a monthly average. Just to clarify, if Form
1098 from the bank shows interest paid as $1700 but calculating the "Deductible
Home Mortgage Interest" it is $1626, then $1626 is what I enter on line 10 of
Schedule A?

[Arthur Rubin]

On Monday, November 23, 2015 at 7:41:43 AM UTC-8, njoracle wrote:
> Good to know. I can easily calculate a monthly average. Just to clarify, if Form
> 1098 from the bank shows interest paid as $1700 but calculating the "Deductible
> Home Mortgage Interest" it is $1626, then $1626 is what I enter on line 10 of
> Schedule A?

Yes

--
Arthur Rubin
CRTP, AFSP in Brea, CA

[njoracle]

Arthur Rubin wrote:
> On Sunday, November 22, 2015 at 5:31:43 PM UTC-8, njoracle wrote:
>
>> I figured it out using the worksheet on IRS worksheet associated with
>> Publication 936. After calculating the Average Mortgage Balance to be $104,500,
>> it looks like I can deduct about 95.7% of the interest.
>
> You can use a monthly average, if it produces a smaller average balance. In fact, you can use any "reasonable" averaging method, including those not listed in Publication 936.
>

To further complicate this: Of the total $104,500, $29,000 was devoted
to home improvements such as a new driveway and a new kitchen. Another
$20,000 was dedicated to a loan to one of my kids for which they are
paying me back (principal and interest) over 5 years. Do these facts
change they way I calculate the amount of interest I can deduct?

[ira smilovitz]

On Monday, October 17, 2016 at 11:14:42 AM UTC-4, njoracle wrote:
> Arthur Rubin wrote:
> > On Sunday, November 22, 2015 at 5:31:43 PM UTC-8, njoracle wrote:
> >
> >> I figured it out using the worksheet on IRS worksheet associated with
> >> Publication 936. After calculating the Average Mortgage Balance to be $104,500,
> >> it looks like I can deduct about 95.7% of the interest.
> >
> > You can use a monthly average, if it produces a smaller average balance. In fact, you can use any "reasonable" averaging method, including those not listed in Publication 936.
> >
> To further complicate this: Of the total $104,500, $29,000 was devoted
> to home improvements such as a new driveway and a new kitchen. Another
> $20,000 was dedicated to a loan to one of my kids for which they are
> paying me back (principal and interest) over 5 years. Do these facts
> change they way I calculate the amount of interest I can deduct?
>
> --

Yes. The $29,000 used for improvements is acquisition debt. (This assumes the kitchen improvement was structural, not just appliance replacements.) As long as it, plus your other acquisition debt, doesn't exceed $1million, that part of the interest is fully deductible. The remaining $75,900 is home equity debt. As long as your total home equity debt is less than $100,000, this interest is also fully deductible.

Ira Smilovitz, EA

[njoracle]

ira smilovitz wrote:
> On Monday, October 17, 2016 at 11:14:42 AM UTC-4, njoracle wrote:
>> Arthur Rubin wrote:
>>> On Sunday, November 22, 2015 at 5:31:43 PM UTC-8, njoracle wrote:
>>>
>>>> I figured it out using the worksheet on IRS worksheet associated with
>>>> Publication 936. After calculating the Average Mortgage Balance to be $104,500,
>>>> it looks like I can deduct about 95.7% of the interest.
>>>
>>> You can use a monthly average, if it produces a smaller average balance. In fact, you can use any "reasonable" averaging method, including those not listed in Publication 936.
>>>
>> To further complicate this: Of the total $104,500, $29,000 was devoted
>> to home improvements such as a new driveway and a new kitchen. Another
>> $20,000 was dedicated to a loan to one of my kids for which they are
>> paying me back (principal and interest) over 5 years. Do these facts
>> change they way I calculate the amount of interest I can deduct?
>>
>> --
>
> Yes. The $29,000 used for improvements is acquisition debt. (This assumes the kitchen improvement was structural, not just appliance replacements.) As long as it, plus your other acquisition debt, doesn't exceed $1million, that part of the interest is fully deductible. The remaining $75,900 is home equity debt. As long as your total home equity debt is less than $100,000, this interest is also fully deductible.
>
> Ira Smilovitz, EA
>

I think it would be classified as structural as this is what I did: (1)
Removed all old cabinets. (2) removed and duscarded gas range and oven.
(3) Installed all new cabinets. (4) Installed granite counter tops on
top of floor cabinets. (5) Installed center island with granite counter
top and (6) Installed new appliances including gas range, electric oven
and microwave. Reused the existing refrigerator. Does that meet the
"structural" requirements?

[ira smilovitz]

That's why you pay a tax professional. No matter what I say, I won't be there to defend you if the IRS takes a contrary position. And you won't be able to cite my advice as your defense. On the other hand, if you hire a tax professional and s/he recommends taking all of the expense as acquisition debt, you can use the argument that you relied on competent, professional advice to mitigate penalties.

Ira Smilovitz, EA

[Arnie Goetchius]

Many thanks for you response. I do have a tax professional do my taxes
but I was having difficulty explaining the issue to them. I will use
your term of "acquisition debt" when I raise the issue with them.