Mortgage Deductibility

I’ll keep it simple because I know I’d rather be watching some crazy Youtube video or skimming through a more interesting blog with scandalous celebrity pictures than reading about mortgage deductibility.

Here’s the skinny. According to financial-planning.com there are two types of mortgages for tax purposes. There is acquisition indebtedness which is a mortgage used to acquire or improve a home and there is home equity indebtedness, which is a mortgage borrowed against your home that you use for other purposes, unrelated to your primary residence. So taking out a home equity line of credit or refinancing against the equity you’ve built in your home to fund your child’s college education or buy a second property falls under home equity indebtedness. Interest paid on acquisition indebtedness is deductible up to 1M. Interest paid on home equity indebtedness is deductible, but only up to 100k. However, if you are one of AMT’s lucky victims you’ll find that interest on home equity indebtedness is non-deductible.

So if you’re thinking of leveraging the equity you’ve built in your home and taking out a home equity line of credit or cashing-out a portion of your home’s equity as you refinance, be wary of the tax consequences. Sure you may be able to use the additional funds to beat the odds in the stock market or buy a second property, but please make sure that you account for non-tax deductibility. In short, if you’re not subject to AMT, only 100k of home equity indebtedness is deductible. If you are subject to AMT none of it is deductible.

Now back to watching an anaconda swallow some type of wildebeest on Youtube.