What yo say may be valid, as statute changes can invalidate regulations. However, has that ever been argued in court?
As to the regulations issued being "temporary," they certainly aren't anymore. "Temporary regulations" issued before the statutuory 3-year rule in 1989 are in fact permanent and in force; at least Tax Court Judge Laro thinks so.
The regulations I pointed to do deal with the issue - in that they deal with the allocation of the debt into its various categories: Business, investment, qualified residence, or personal (the last class meaning the interest is not deductible). That still comes first, before one has to consider any limitation on any class of debt.
What some of you are claiming is that some amounts of interest are deductible just because there's a residence-secured loan regardless of where the loan proceeds were spent, and that is wrong.
But they don't deal with the specific issue: assuming a debt otherwise qualifies for the mortgage interest deduction, is the amount of the deduction for loans over $1,000,000 calculated once or each year? The way the statute is written, the calculation is done each year. You have pointed to no regulation that even attempts to contradict that specific issue.
No, it has nothing to do with that. Again, the issue is, when the loan otherwise qualifies except for its size, what happens when the principal balance goes below $1,000,000? The statute seems clear, and you have shown no authority otherwise on that specific point.
Often, though not with respect to this particular issue, of course. Based on the way the IRS apparently treats these loans, there seems to be no controversy that would end up in court.
Temporary regulations are still given deference by the courts - just not quite as much, since they may not have gone through all the legal requirements to become actual regulations.
This is all fascinating! I am accountant (not not a tax accountant) and can follow a lot of what is being discussed here. It never ceases to amaze me how complicated our tax law is. At the risk of putting many of you out of business, I have become and advocate of a flat tax with no exemptions or deductions!!! I think I'll compute my interest deduction yearly and if I end up in a lawsuit against the IRS I'll hire a few of you to help me!
Maria
We already have a flat tax of sorts - the AMT.
The real problem is what to do about business taxes. They are a lot more complicated and leave opportunities for more abuse.
This is the same point that you and I keep making. There are no regulations (Proposed, Temporary or Final) on this point. Therefore, relying upon the the plain language in the IRC section added by OBRA '87 is all I need to make my decision. An 8275-R is not required as I am not taking a position contrary to a TR.
So, when someone gets a $1.5 million mortgage, what class or classes is that?
Interest on $100,000 is deductible if it's residence-secured, no matter where the proceeds were spent. But that isn't the point at issue; rather, if a $1.5 million purchase-money mortgage is taken out, interest on $1 million is deductible each year until the balance falls below $1 million. The law says so, and the IRS says so.
Seth
The regulation is a citable authority. But since it isn't on point, it has no more effect than the 19th Amendment to the Constitution (which is also citable).
Seth
I agree. I happen to have grandfathered debt, acquisition debt, and equity debt. One could argue that monthly loan calculations are unreasonably burdensome, and go for the yearly approach in an audit situation.
-Mark Bole
Mark and Maria,
No one is making either of you deduct mortgage interest. Simplify your tax computations by taking the standard deduction and ignoring all the tax credits. Of course your tax liability will increase but probably not as much as with a flat tax.
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