Deductability of cash out mortgage on first home used to purchase second home

Dumb question, apologies in advance.
Is it deductible? Or does the mortgage actually have to be secured by the second home.
I can get a lower rate by doing a no-points no-closing loan on my current home
for a single mortgage covering both the remaining balance in the first home and the total cost of the 2nd home. I have lots of home equity.
This may only make sense if I can deduct the whole thing.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 1/18/13 9:23 AM, snipped-for-privacy@yahoo.com wrote:

for a single mortgage covering both the remaining balance in the first home and the total cost of the 2nd home. I have lots of home equity.

There was a discussion of this in early 2012. To deduct your mortgage interest, the home has to be security for the loan. Therefore, if you refi your current home and take out cash to buy a second home, the interest on the new loan is deductible to the extent that it represents the balance on the loan paid off plus up to $100,000 of home equity debt.
Example: You owe $200K on your current home that has a FMV of $500K. You refi and obtain a loan of $350K that you use to pay off the $200K and buy a second home. Your interest deductions are limited to the interest on $200K plus $100K of home equity.
--
Alan
http://taxtopics.net
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 1/18/13 12:16 PM, Alan wrote:

Alan - I should go back and look at that thread from last year. I agree with your response, but then read: http://www.bankrate.com/finance/taxes/refinancing-home-opens-opportunities.aspx (short link - http://tinyurl.com/by7pozt )
Which seems to state otherwise. The article spells out a very similar situation and concludes "If the property qualifies as a second home then all the interest paid on the $288,000 loan will be deductible on Schedule A."
(The remaining mortgage pre-refi is $100K. And $40K is paying off unsecured debt)
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 1/18/13 11:13 AM, JoeTaxpayer wrote:

I disagree. I used to agree until we had the discussion back in early 2012. I cam around to agree with D. Stussy. Further research came up with the following from the January 2012 discussion:
I did find IRS Guidance that supports D. Stussy's position. It is buried in IRS Notice 88-74.
TREATMENT OF DEBT WHICH IS PARTIALLY ACQUISITION INDEBTEDNESS AND PARTIALLY HOME EQUITY INDEBTEDNESS Regulations will provide that a single debt may qualify as partially acquisition and partially home equity indebtedness. Therefore, for example, if a taxpayer incurs a debt secured by his qualified residence and uses a portion of the debt proceeds to refinance an existing acquisition indebtedness and uses the remaining portion of the debt proceeds for purposes other than the substantial improvement of the residence, the portion of the debt used to refinance the acquisition indebtedness will qualify as acquisition indebtedness and the portion of the debt used for other purposes will generally qualify as home equity indebtedness, subject to the $100,000 limitation on home equity indebtedness.
--
Alan
http://taxtopics.net
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
"Alan" wrote in message wrote:

I disagree. I used to agree until we had the discussion back in early 2012. I cam around to agree with D. Stussy. Further research came up with the following from the January 2012 discussion:
I did find IRS Guidance that supports D. Stussy's position. It is buried in IRS Notice 88-74.
TREATMENT OF DEBT WHICH IS PARTIALLY ACQUISITION INDEBTEDNESS AND PARTIALLY HOME EQUITY INDEBTEDNESS Regulations will provide that a single debt may qualify as partially acquisition and partially home equity indebtedness. Therefore, for example, if a taxpayer incurs a debt secured by his qualified residence and uses a portion of the debt proceeds to refinance an existing acquisition indebtedness and uses the remaining portion of the debt proceeds for purposes other than the substantial improvement of the residence, the portion of the debt used to refinance the acquisition indebtedness will qualify as acquisition indebtedness and the portion of the debt used for other purposes will generally qualify as home equity indebtedness, subject to the $100,000 limitation on home equity indebtedness. ============ To count as acquisition debt of the second home, the loan must be secured by the second home.
A loan secured by the first home to acquire a second does not create acquisition debt. It [may] create[s] home equity debt in the first home.
The debt tracing rules are clear on this fact.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote:

Mr Stussy is correct.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.