Today TaxMama® hears from LFloom in the TaxQuips Forum with a very good question.
We want to buy a vacation home that will eventually be a retirement home. It is difficult and more expensive to get a loan on this place. So, I want to get a mortgage on my primary home to buy the second home. Will the interest be tax deductible?
That is an excellent question. And I am so glad that you asked this before going forward.
You would think this would be straightforward. The loan is really meant for the new residence, so why should you have any problem with the deduction?
Unfortunately, the way the current tax laws are written, your mortgage interest deduction, essentially works like this:
You get to deduct all the interest on the mortgage to buy or to improve/repair your personal residence or one second residence (acquisition debt). The limit on the amount of the loan is $1 million.
Plus you get to deduct the interest on another $100,000 worth of debt secured by one of your homes.
Since the loan you will taking out will be on your personal residence, and it will not be secured by the vacation home, you are limited to deducting the interest on only $100,000 of debt.
To get some ideas on how to make this work, please log into the TaxQuips Forum .
And remember, you can find answers to all kinds of questions about mortgage interest and other tax and business issues, free. Where? Where else? At www.TaxMama.com.