A friend wants to buy a vacation home (second home) by refinancing the mortgage loan on his main home. Here is the plan:
Refinance main home loan by paying off the $200K balance with a new
$350K loan secured by his main home with $150K cash out. Assume the loan
closes on March 1, 2012. The $150K will be parked in a savings account
pending the purchase of the vacation home. He makes an offer on May 15,
2012 to buy a home. He closes on the new home on June 30, 2012. He pays
$300K for the home by withdrawing the $150K he borrowed on his main home
and adds to that $150K that he has.
I'm trying to figure out come July 1, 2012, how much acquisition debt he
has and how much home equity debt he has (if any) and how much interest
expense is deductible as mortgage interest.
What are his options for deducting interest expense during the 4 month
period that the $150K was sitting in a savings account?
Would it matter if he closed on the new home within a shorter period of
time, say less than 90 days after borrowing the money?
What if he deposits the $150K loan proceeds in a savings account that
contains $200K, bringing the balance to $350K. Is there any tracing
problem when he withdraws the $300K to purchase the vacation home?
- posted 8 years ago