I remarked to someone that I was pretty sure that one cannot borrow money (and deduct the interest) if the proceeds are used to buy tax-free bonds or tax free bond funds. I am certain that at one point in time that was true, but now I am unable to find a reference to an IRS reg stating this. Can someone confirm this with a reference I can pass along? Joe
"joetaxpayer" wrote
Pub. 936, page 4 confirms what you say. Specifically, a HEL's interest is not deductible if one uses the proceeds of the loan to buy securities or certificates that produce tax-free income.
I see the IRS web sites I cited earlier in another thread do not explicitly include this exception. One has to read Pub.
936 for the fine print.
But I assume the interest on a home-secured HELOC over $100K should continue to be deductible if one is retired, 70+, living on withdrawals from tax-deferred IRAs (non-annuitized), and using occasional withdrawals from that HELOC to supplement the mandatory minimum withdrawals each year? -- objective of this exercise being to keep maximum amount exarning in the tax-deferred IRA accounts.
"If you borrow money to buy property you hold for investment, the interest you pay is invest- ment interest. You can deduct investment inter- est subject to the limit discussed later. However, you cannot deduct interest you incurred to pro- duce tax-exempt income."
I believe you assume incorrectly. Interest on home equity debt in excess of $100,000 is not deductible under any circumstances unless it qualifies as investment debt, which your scenario does not.
A side note of thanks to Elle for correcting my earlier response. They sure managed to hide that one, both in the Pub and in the Code.
Beautiful. My thanks, as always, Elle. Joe
"AES" wrote
What Phil said regarding the $100k, plus a caveat regarding fair market value of the house and its mortgages per
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