home mortgage usage
Can a home mortgage, in excess of $1 million, be used to refinance a commercial property mortgage? And would there be any limitation on the interest deduction?
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11/11/09 6:52pm PST
Viewed by asker 04/20/11 8:12am PDT
Viewed by asker 04/20/11 8:12am PDT
9 Replies
Accountant Man
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11/11/09 6:58pm PST
The solution
The interest tracing rules would come into effect here. If the proceeds of the loan are used to finance a business property, then the interest expense would be deductible as a business debt, not a home debt. That portion would not be deductible on Schedule A.
Home acquisition indebtedness has a $1 million limit, plus $100K for home equity indebtedness.
If you use Pro Series Basic I might not be able to help you. If you use Turbo Tax I might refuse to help you. All others, watch out! ;-)
04/18/11 2:45pm PDT
Should there be a written election attached to the return re: the tracing of this interest to a business or a rental? If so, what wording would you recommend.
04/18/11 2:57pm PDT
I know of no election available to that effect. Just the fact that you are not showing it on Sched A is probably enough to satisfy the rules.
04/18/11 3:50pm PDT
It is an actual election per Reg 1.163-10T(o)(5). Here's an excerpt from the Journal of Accountancy:
"The election is made by the due date of the return, including extension, for the year in which the election is effective, by deducting the interest on the appropriate line of the tax return. It is also recommended that taxpayers attach a statement to the tax return. See Temp. Treas. Reg. § 1.163-10T(o)(5)." --http://www.journalofaccountancy.com/Issues/2010/Jun/2010263...
And the election then applies for the year of the election and all subsequent tax years. The election cannot be revoked without IRS consent.
04/18/11 4:33pm PDT
I also do it as colibri explains. Without this election I don't think principal home debt can be allowed the tracing rules. Although I would reckon some revenue agents would probably OK it without the election if you could show trails.
04/18/11 5:40pm PDT
Perfect - thank you everyone - so re: the wording how would you actually word the election?
04/18/11 6:43pm PDT
Something like...
Pursuant to Treasury Reg. 1.163-10T(o)(5), taxpayer elects to treat debt as not secured by the qualified residence and instead will deduct the related interest expense as a business expense.
