Interest On HELOC of $110,000 Deductible?

I understand that the interest on a Home Equity Loan is deductible if the loan is less than $100,000. So the questions are:
1. If the HELOC goes to $110,000 does that mean all of the interest associated with the loan cannot be deducted or is it that just the interest associated with the $10,000 over $100,000 can't be deducted?
2. If the HELOC is $110,000 on Jan 1 2016 but $99,000 by Jan 31, 2016, can all of the interest be deducted?
Reply to
njoracle
I figured it out using the worksheet on IRS worksheet associated with Publication 936. After calculating the Average Mortgage Balance to be $104,500, it looks like I can deduct about 95.7% of the interest.
Reply to
njoracle
You can use a monthly average, if it produces a smaller average balance. In fact, you can use any "reasonable" averaging method, including those not listed in Publication 936.
Reply to
Arthur Rubin
Good to know. I can easily calculate a monthly average. Just to clarify, if Form 1098 from the bank shows interest paid as $1700 but calculating the "Deductible Home Mortgage Interest" it is $1626, then $1626 is what I enter on line 10 of Schedule A?
Reply to
njoracle
To further complicate this: Of the total $104,500, $29,000 was devoted to home improvements such as a new driveway and a new kitchen. Another $20,000 was dedicated to a loan to one of my kids for which they are paying me back (principal and interest) over 5 years. Do these facts change they way I calculate the amount of interest I can deduct?
Reply to
njoracle
Yes. The $29,000 used for improvements is acquisition debt. (This assumes the kitchen improvement was structural, not just appliance replacements.) As long as it, plus your other acquisition debt, doesn't exceed $1million, that part of the interest is fully deductible. The remaining $75,900 is home equity debt. As long as your total home equity debt is less than $100,000, this interest is also fully deductible.
Ira Smilovitz, EA
Reply to
ira smilovitz
I think it would be classified as structural as this is what I did: (1) Removed all old cabinets. (2) removed and duscarded gas range and oven. (3) Installed all new cabinets. (4) Installed granite counter tops on top of floor cabinets. (5) Installed center island with granite counter top and (6) Installed new appliances including gas range, electric oven and microwave. Reused the existing refrigerator. Does that meet the "structural" requirements?
Reply to
njoracle
That's why you pay a tax professional. No matter what I say, I won't be there to defend you if the IRS takes a contrary position. And you won't be able to cite my advice as your defense. On the other hand, if you hire a tax professional and s/he recommends taking all of the expense as acquisition debt, you can use the argument that you relied on competent, professional advice to mitigate penalties.
Ira Smilovitz, EA
Reply to
ira smilovitz
Many thanks for you response. I do have a tax professional do my taxes but I was having difficulty explaining the issue to them. I will use your term of "acquisition debt" when I raise the issue with them.
Reply to
Arnie Goetchius

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