Claiming Mortgage interest on second home - required?

Technical topics regarding tax preparation.
#1
NOVATax  
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Do I have to include my second home on the mortgage interest calculation, or can I only use my my main home.

When averaging together and using the calculation on Pub 936, I would fare better only using the main home in the calculation.

Again, maybe I am missing something in the Pub.
 

#2
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Were you able to find the answer? I am presently researching this as well.
 

#3
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There are several old TPT posts on the overall question of whether the law requires claiming all deductions, some re: EITC, others just in general. Try some searches.

I looked briefly and here are some of the threads.
viewtopic.php?f=8&t=5390&hilit=maule+welcome
viewtopic.php?f=8&t=9983&p=91808&hilit=not+required+to+claim+deduction#p91808
 

#4
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Thank you, Nilodop. Those were interesting threads.

In my instance, the main question I have is if one is required to include a second home's average mortgage balance in the total average mortgage balance, or can the second home be disregarded.
 

#5
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I guess I misunderstood your question.
 

#6
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§ 163(h)(3) says this:

Qualified residence interest
For purposes of this subsection—
(A)In general
The term “qualified residence interest” means any interest which is paid or accrued during the taxable year on—
(i)acquisition indebtedness with respect to any qualified residence of the taxpayer, or
(ii)home equity indebtedness with respect to any qualified residence of the taxpayer.
For purposes of the preceding sentence, the determination of whether any property is a qualified residence of the taxpayer shall be made as of the time the interest is accrued.


If the second home is a "qualified residence" I don't know how you could disregard it?
 

#7
Nilodop  
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I don't see anything in the regs. either that would allow that. Reg. 1.163-10T(h)(3). There's the (o)(5) election, but I dom't see where that would help you.
 

#8
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Thanks to both of you, I am leading towards a conservative approach after reading the IRC as well.
 

#9
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Nightsnorkler was on the right track, but didn’t go far enough. See Sec. 163(h)(4):

(4) Other definitions and special rules.—For purposes of this subsection—
(A) Qualified residence.—
(i) In general.—The term “qualified residence” means—
(I) the principal residence (within the meaning of section 121) of the taxpayer, and
(II) 1 other residence of the taxpayer which is selected by the taxpayer for purposes of this subsection for the taxable year and which is used by the taxpayer as a residence (within the meaning of section 280A(d)(1)).

If the taxpayer doesn't select the second home as a residence, then it's not a "qualified residence."
 

#10
Nilodop  
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Sure, that's true, if he wants to not claim any interest deduction for the second residence. That was the essence of my first response, but then OP posted in #4 that he was talking about a second residence but did not want to include it when calculating average balance.
 

#11
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Nilodop wrote:Sure, that's true, if he wants to not claim any interest deduction for the second residence. That was the essence of my first response, but then OP posted in #4 that he was talking about a second residence but did not want to include it when calculating average balance.

I understand that this is the question --- whether the mortgage on the second residence can be disregarded.

BucknerCPA wrote:In my instance, the main question I have is if one is required to include a second home's average mortgage balance in the total average mortgage balance, or can the second home be disregarded.

And my answer is that it CAN be disregarded because sec. 163(h)(4) allows a taxpayer to select (or not select) a second residence.
 

#12
Nilodop  
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Or does "select" mean select which of multiple homes (beyond the principal residence) is the second residence?

In any event, if the question is can taxpayer who has a total of 2 residences choose not to count one as a second residence, the preponderance of views on TPT is yes he can.
 

#13
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Nilodop wrote:Or does "select" mean select which of multiple homes (beyond the principal residence) is the second residence?

Reg. 1.163-10T(p)(3)(i)(C) states that the taxpayer must make an election to treat a residence as a second qualified residence, so if the taxpayer doesn’t make this election, that residence isn’t counted for purposes of determining the interest deduction.

This quote from Dunford, TCM 2013-189 suggests that a taxpayer need not “select” a second residence:

Section 163(h)(4)(A)(i)(II) also requires that a qualified residence be “selected by the taxpayer for purposes of * * * [section 163(h)]”. The Dunfords did not “select” the motor home as their second residence on their returns; but the statute does not require “select[ion]” on the return. Temporary regulations permit a taxpayer to “elect” a second residence, see sec. 1.163-10T(p)(3)(iv), Temporary Income Tax Regs., 52 Fed. Reg. 48410 (Dec. 22, 1987); but there is no provision in the Code or the regulations that fixes the time or the manner by which a taxpayer makes the selection. Making that selection in litigation is acceptable. See Lawler v. Commissioner, T.C. Memo. 1995-26. We conclude that the Dunfords are entitled to deduct as “qualified residence interest” their motor home loan interest payments.

Nilodop wrote:In any event, if the question is can taxpayer who has a total of 2 residences choose not to count one as a second residence, the preponderance of views on TPT is yes he can.

I’m in that group.
 

#14
Nilodop  
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I too am in that group, and in my post #3 I was trying to steer OP to that conclusion while still allowing for the minority position that one has to claim deductions that are allowed.

But then in #4, BucknerCPA asked In my instance, the main question I have is if one is required to include a second home's average mortgage balance in the total average mortgage balance, or can the second home be disregarded.

But then in #s 5 thru 8 it seems we aere dealing with a more nuanced issue, namely, can one elect/select a 2nd residence for 163 purposes but only count the principal residence in the average balance calculation. I said as much in #10.

So where we seem to be is that one can disregard an "actual" 2nd residence (by not electing it as one, per the TCM case interpretation), but that if one elects a second residence treatment under 163, one must be consistent and include its debt in the calculation of average balance.

And with so far only that TCM case as an interpretation, I still have a nagging doubt that 163(h)(4), right there in (A)(i)(II), by using "selected", not "elected", means selected from more than one residence that could be selected as the 2nd residence. And I note that the word elect or a derivative is used 26 times in 163, and the word select or a derivative is used but once. However, I also note that in 1.163-10T(p)(3)(i) we find
That the taxpayer elects to treat as a second residence pursuant to paragraph (p)(3)(iv) of this section.


So I'd say it's by far the more likely correct position that one does not need to elect a second residence, thereby forgoing whatever benefit that might bring in the form of an added interest deduction. What's an example when that reduces the overall tax? Would it just be when secured debt exceeds the $1,000,000 limit allowed under 163 for acquisition debt?
 


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