Form 6251- Line 4 of Home Mortgage Interest Adjustment Worksheet, accounting method needed to determine a HELOC interest usages.

My understanding is that Mortgage Interest must have its uses separated in order to do this calculation properly, because if the interest is for anything else other than home related (building, remodeling, etc) it isn't deductible with AMT. Please correct me if my assumption is mistaken or needs better clarification.

If my assumption above is correct, the issue of my post is regarding the HELOC interest. How do you determine what part of the interest on a HELOC has non-deductible usages such as furniture for the home, student loans, etc vs deductible home interest?

What is the typical accounting practice method to do this sort of account reporting? How is this treated over the life of the HELOC when it has a mix of home remodeling uses and non-deductible purchases? When money is paid against the HELOC balance, how do you record if that money is being used to pay off the non-deductible part or can you?

What accounting methods are correct or permissible to use which are acceptable to the IRS? Access to a spreadsheet which allowed recording of the HELOC checks written with usage to determine their part of the interest would be ideal.

If my approach and concern to this whole issue of Form 6251- Line 4 of Home Mortgage Interest Adjustment Worksheet is wrong, please kindly correct me and point me to the proper resources so I can become better enlightened. Thanks!

Edward

Reply to
eastcoastguyz
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Correct.

IRS Publication 936 provides detailed explanation of "mixed use mortgages", along with worksheets and examples.

Principal is used to pay down home equity debt first until the balance is zero, then home acquisition debt.

You need to keep your own records, in case you need to document how you determined what interest was deductible. Pub 936 has more information.

-Mark Bole

Reply to
Mark Bole

Pub 963 is a good lace to learn about "acquisition debt."

A few oversimplified basics:

A mortgage is a loan on your property and is secured by that property.

A mortgage used to buy, build or improve your main home or one second home, is Acquisition Debt.

A mortgage on your main home or one second home used for any other purpose is Home Equity Debt.

Interest on these loans that you paid may be deducted on Schedule A up to $1million of principal for acquisition debt and $100,000 of home equity debt. That's for regular income tax. For AMT, interest on only acquisition debt may be deducted.

So if you took out a mortgage and regardless of whether the bank called it a HELOC or whatever, the amount of that loan that you can prove was used to buy, build or improve is deductible acquisition debt and the remainder is home equity debt.

Reply to
Arthur Kamlet

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