Posted on: 06th Sep, 2007 05:30 pm
I have paid off the mortage on my primary residence and am considering mortgaging it again to buy a vacation home. would the interest be on the loan be tax deductible?
Billgtrack,
You would be able to avail tax deduction for the interest paid on this new mortgage.
Miller
You would be able to avail tax deduction for the interest paid on this new mortgage.
Miller
You can read more about what can be deducted as mortgage interest & also how to report deductible interest on your return from here - http://www.irs.gov/publications/p936/ar02.html
Hi Billgtrack,
If you want to purchase a vacation property with a loan taken against your primary residence, you will not be allowed to get the deduction on your interest payment. The IRS will not allow the tax deduction on the interest payment of the loan.
If you want to purchase a vacation property with a loan taken against your primary residence, you will not be allowed to get the deduction on your interest payment. The IRS will not allow the tax deduction on the interest payment of the loan.
Thanks to all for the help.
I see there is a disagreement as to whether or not the interest is tax deductible.
IRS Pub 936 page 2 lists three catagories where the interest is "fully tax deductible". The second catagory states "to buy build or improve your home" It doesn't include "to buy a second home". Therefore, Larry's answer that the interest is not deductible appears to be correct. However, it is listed as tax deductible in Figure A of IRS Pub 936 in block 4 of the decision tree which would agree with Miller's answer.
I am trying to decide whether to take the mortage on the primary residence or on the vacation home and am leaning towards the vacation home. It would be lived in it for over 14 days and rented for less than 150 to meet the useage requirement.
Bill
I see there is a disagreement as to whether or not the interest is tax deductible.
IRS Pub 936 page 2 lists three catagories where the interest is "fully tax deductible". The second catagory states "to buy build or improve your home" It doesn't include "to buy a second home". Therefore, Larry's answer that the interest is not deductible appears to be correct. However, it is listed as tax deductible in Figure A of IRS Pub 936 in block 4 of the decision tree which would agree with Miller's answer.
I am trying to decide whether to take the mortage on the primary residence or on the vacation home and am leaning towards the vacation home. It would be lived in it for over 14 days and rented for less than 150 to meet the useage requirement.
Bill
if you took out a loan on your primary residence then it would be tax deductible. it doesn't matter what you do with the money as the mortgage is on the primary residence. it would be considered a cash out refinance and most lenders would be willing to do so up to around 70-80% of your homes value depending on credit.
now the thing to consider is this - will you save money by financing the primary residence instead of the vacation property?
1. the primary residence will get a better rate but you will take a hit for the amount of cash taken to buy the vacation home.
2. on the vacation home you may get a better rate if you are willing to put at least 10% down as that is what will probably be required at a minimum to buy the vacation home.
3. the last thing to consider will be mortgage insurance if applicable. if you are putting less than 20% down then you will have to pay it. likewise on your primary residence cash out or not you will have to pay it if you use up more than 80% of your equity.
now the thing to consider is this - will you save money by financing the primary residence instead of the vacation property?
1. the primary residence will get a better rate but you will take a hit for the amount of cash taken to buy the vacation home.
2. on the vacation home you may get a better rate if you are willing to put at least 10% down as that is what will probably be required at a minimum to buy the vacation home.
3. the last thing to consider will be mortgage insurance if applicable. if you are putting less than 20% down then you will have to pay it. likewise on your primary residence cash out or not you will have to pay it if you use up more than 80% of your equity.
The interests on the loan would be tax deductible...however, that would depend on the location of the vacation home and taxes bracket as well..but typically is right.