Together with my two sisters, I co-own the house where my parents are now living. There is a home-equity line on the house that all three of us had to co-sign on, which was used to pay for a new addition on the house and make it handicapped-accessible so my parents could live there. My understanding of publication 936 is that this is all (so far) considered acquisition debt, because it was used to substantially improve the home. Only two of us kids are in a position to pay the expenses at the moment, so I am splitting the loan payments with one of my sisters, who is currently living in the house with my parents.
My position is that each of us kids is jointly-and-severally liable for the whole amount of loan payments and property taxes, so we each get to deduct whatever is deductible that we actually pay (under the "second home" rules for me, and the "primary home" rules for my sister). So given that, if I'm paying half the interest (on an otherwise-qualified "second home"), I think I get to deduct that half of the interest, even if I only own a third of the house.
My Main Question: This year, my sister would like to pay the full amount of the loan payments directly to the bank and have me pay her back for half, instead of my paying the bank directly as I have been. Would that affect the deductibility, and if not, what records would we need to keep to support the deduction?
A secondary question: we anticipate drawing further on the home equity line later this year, in order to get the money to fix up and sell my parents' previous home, and perhaps to help provide for their upkeep. My understanding is that this extra money will be considered home equity debt, subject to the $100,000 limitation on the amount of home equity debt that has deductible interest. I believe this limit for me is $100,000 in total home equity debt (not counting any acquisition debt) between the home equity debt on this property and home equity debt on my primary home, while my sister gets her own $100,000 limit that is separate from mine. Or is this supposed to be a $100,000 limit for all home equity debt on a single property, regardless of how it gets split up?
For purposes of illustration, let's assume that I have $50,000 of home equity debt on my own home, and we borrow an additional $150,000 against the shared property for the purposes I mentioned above, which my one sister and I continue to split the interest on. Then my interpretation is that I could either deduct all of the interest I pay on the shared property ($75,000 in HE debt) and half the interest on my own loan ($25,000 out of $50,000), or I could deduct only 2/3 of the additional interest paid on the joint property ($50,000 out of $75,000 principal) and all the interest on my own loan. Presumably I would make that choice based on which loan had the higher interest rate. In either case, my sister could deduct all her share of the interest on the HE debt ($75,000 for her share of the principal), since she doesn't have another HE loan.
But if my interpretation is wrong, and the limit was $100,000 per property, then we would each only be able to deduct 2/3rds of the additional interest on the joint property. Which approach is correct?