Taking money out of a house...

I'm writing an article on the tax implications of taking money out of a house: HELOC, 2nd mortgage, reverse mortgage, etc. I know these all have important differences, but do they have different tax breaks? I'm
interested in any comments on this topic in this forum.
In addition, professionals who would be interested in being interviewed for this article can let me know at snipped-for-privacy@yahoo.com.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

A mortgage is a loan secured by the home.
A mortgage used to buy, build or improve the home is known as acquisition debt and interest on acquisition debt of up to $1 million of principal is deductible on Schedule A for regular income tax and is not an AMT preference item. (AMT Preference items increase AMT Income and thus may increase AMT.)
A mortgage used for any other purpose is known as Home Equity Debt and interest on up to $100,000 of principal is detuctible on schedule A and is an AMT preference item, so cannot be deducted for AMT purposes.
So just because you have negotiated a HELOC does not necessarily mean that loan is a home equity loan; it depends on the use of those funds.
Second mortgages have different meanings depending how it is used.
Reverse mortgages add to the principal owed, and the interet accumulates. Since none of the interest is paid out of pocket, none of that interest is deductible.

--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Richard wrote:

It would be difficult to do more than scratch the surface of your question without writing a partial draft of your article. I assume from viewing your footprint on the web, you probably already know this.
To be thorough, your article would have to cover topics such as allocation of loan proceeds and interest tracing (are the proceeds being used to invest in a long-term asset?), loan collateral, qualified home, marital and tax filing status of owner(s), limits on mortgage interest deduction, refinancing and points, tax brackets and Alternative Minimum Tax (AMT), and that's before we get to "special situations" like below-market-interest loans and so on.
I'd love to see an article that helps inject some wakefulness into the American Dream Of Home Ownership (ADOHO, or should that be A-D'OH!-O). My favorite quote, from a prospective home owner, from Sunday's real estate newspaper section:
"Buying a first home is supposed to be a really exciting thing to do for a family, [but] all the hoops you have to jump through kind of take away from that excitement."
Whoever said it was "supposed to be really exciting"??? It's more like cleaning gutters, pulling weeds, filling out your Form 1040, and updating your retirement and estate plan all on the same weekend--all valuable activities, but certainly not exciting.
-Mark Bole
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.