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IRS Rules That Mortgages Over $1 Million Can Be Deductible - Emil Estafanous, CPA : Emil Estafanous, CPA

IRS Rules That Mortgages Over $1 Million Can Be Deductible

The IRS has ruled that indebtedness incurred by a taxpayer to acquire, erect or almost urge a competent chateau can consecrate “home equity indebtedness” to a border it exceeds $1 million, adult to an additional of $100,000 (Rev. Rul. 2010-25).

In a fact conditions discussed in a ruling, an unwed particular purchased a principal chateau for a satisfactory marketplace value of $1.5 million. The taxpayer paid $300,000 and financed a residue of a cost by borrowing $1.2 million by a loan that is cumulative by a residence. The taxpayer has no other debt cumulative by a residence.

Under Sec. 163(h), taxpayers can generally concede dual forms of debt cumulative by their residences: “acquisition indebtedness,” that is debt that is used to acquire, erect or almost urge a residence, and “home equity indebtedness,” that is any other debt cumulative by a home. Acquisition indebtedness can't surpass $1 million, and home equity indebtedness can't surpass $100,000.

Prior interpretations of a tenure “acquisition indebtedness” focused on a purpose of a debt and hold that merger indebtedness means all debt, regardless of amount, used to acquire, erect or almost urge a residence. This was a Tax Court’s holding in Pau, T.C. Memo. 1997-43, and Catalano, T.C. Memo. 2000-82.

According to a income ruling, this interpretation is not correct. Instead, a IRS has ruled that a $1 million extent is an component of a clarification of merger indebtedness. Any volume of a debt in additional of $1 million is not merger indebtedness because, by this definition, usually a initial $1 million is merger indebtedness. It therefore follows, according to a ruling, that a taxpayer with a debt incomparable than $1 million can provide a initial $100,000 in additional of a $1 million extent as home equity indebtedness since it is other debt cumulative by a home. This allows a taxpayer to concede seductiveness on a initial $1.1 million of a loan—$1 million as merger indebtedness and $100,000 as home equity indebtedness.

About Emil Estafanous, CPA
Certified Public Accountant (CPA) Tax Professional committed in representing taxpayers and resolving their tax problems.

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