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Cash Flow Planning for Life

Helping you reach your personal & professional financial goals.

Archive for January, 2012

4: What You Need to Know About Mortgage Interest

Posted by Mark On January 18th

What You Need to Know About Mortgage Interest

This is the fourth installment of Tax Deductions & You: What You Need to Know which can also be downloaded from our free eBook library.

Although most people understand that mortgage interest is deductible, many people may not be aware that there are certain situations in which it actually creates a greater savings not to claim a deduction as mortgage interest.

Under Treasury Regulation 1.163-10T(o) a taxpayer may elect to treat mortgage debt as not secured by a qualified residence.

Once this election is made, it is effective for all subsequent years and can only be revoked with IRS permission. The advantage of this election is if a taxpayer has allowable mortgage interest that is limited by the $1,000,000 or $100,000 rules on indebtedness.

Let’s say you have a home equity loan that is used for a business. The interest deducted on a business return or “Schedule C”, in most cases, will create a greater tax savings than if the interest was deducted as mortgage interest.

Here’s an example:

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