| Author |
Message |
Doug
Guest
|
 Posted:
Sat Oct 22, 2005 5:16 am Post subject:
home equity interest as investment interest expense |
|
|
Suppose an individual has a $200k home equity loan that's
used to generate taxable short-term investment income (not
rental income). When computing his deductions, is he
limited by the $100k home equity deduction limit? Or can
he deduct the full $200k as investment interest expense
(4952)? I believe it's the latter provided the interest
expense is traceable to the investment, but I wanted
confirmation nonetheless. Can anyone elaborate?
Thanks..
Doug
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gcrofton@adaptax.com
Guest
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| Posted:
Mon Oct 24, 2005 8:00 am Post subject:
Re: home equity interest as investment interest expense |
|
|
Doug wrote:
| Quote: | Suppose an individual has a $200k home equity loan that's
used to generate taxable short-term investment income (not
rental income). When computing his deductions, is he
limited by the $100k home equity deduction limit? Or can
he deduct the full $200k as investment interest expense
(4952)? I believe it's the latter provided the interest
expense is traceable to the investment, but I wanted
confirmation nonetheless. Can anyone elaborate?
|
If you didn't use the home equity loan proceeds to buy,
build or improve your main or second home, you are limited
to deducting the interest expense as debt on home equity to
that portion of the interest expense on $100,00 of the debt.
This also presumes your total mortgage and home equity
indebtedness is no more than $1 million. If you have
exactly $200,000 of home equity debt for the entire year,
you can deduct 50% of the interest. This is repored on
Schedule A, line 10 or 11.
If you used the proceeds of the loan for investment
purposes, you can deduct an amount up to the total amount of
net investment income for the given year. If investment
expenses exceed investment income, the non-deductible
investment expenses can be carried forward to the following
year. In this case the interest expense is reported on Form
4952, which calculates the allowable deduction and transfers
the figure to Schedule A, line 13.
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
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Mark Rigotti
Guest
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| Posted:
Mon Oct 24, 2005 8:00 am Post subject:
Re: home equity interest as investment interest expense |
|
|
"Doug" <mediavalley2000@yahoo.com> wrote:
| Quote: | Suppose an individual has a $200k home equity loan that's
used to generate taxable short-term investment income (not
rental income). When computing his deductions, is he
limited by the $100k home equity deduction limit? Or can
he deduct the full $200k as investment interest expense
(4952)? I believe it's the latter provided the interest
expense is traceable to the investment, but I wanted
confirmation nonetheless. Can anyone elaborate?
|
Perhaps - though I would suspect not. I believe that the
debt tracing rules would have to apply and in that case the
proceeds of the debt were not properly seperated to allow
this.
Check out the debt tracing rules - which I suspect would
apply - were you to attempt to take this position.
Regards,
Mark Rigotti
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >>
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ed
Guest
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| Posted:
Mon Oct 24, 2005 8:00 am Post subject:
Re: home equity interest as investment interest expense |
|
|
You are correct. Any amount from any source could be
investment interest expense as long as it isn't limited by
the amount of investment income.
ed
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
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David Woods, EA, ChFC, CL
Guest
|
| Posted:
Wed Oct 26, 2005 8:00 am Post subject:
Re: home equity interest as investment interest expense |
|
|
"Mark Rigotti" <rigotti@wideopenwest.com> wrote:
| Quote: | "Doug" <mediavalley2000@yahoo.com> wrote:
Suppose an individual has a $200k home equity loan that's
used to generate taxable short-term investment income (not
rental income). When computing his deductions, is he
limited by the $100k home equity deduction limit? Or can
he deduct the full $200k as investment interest expense
(4952)? I believe it's the latter provided the interest
expense is traceable to the investment, but I wanted
confirmation nonetheless. Can anyone elaborate?
Perhaps - though I would suspect not. I believe that the
debt tracing rules would have to apply and in that case the
proceeds of the debt were not properly seperated to allow
this.
Check out the debt tracing rules - which I suspect would
apply - were you to attempt to take this position.
|
I don't see what the problem is. Poster said the equity
loan is used to generate short-term investment income. What
is there to separate??
--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
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| Back to top |
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Drew Edmundson
Guest
|
| Posted:
Wed Oct 26, 2005 8:00 am Post subject:
Re: home equity interest as investment interest expense |
|
|
Doug" <mediavalley2000@yahoo.com> wrote:
| Quote: | Suppose an individual has a $200k home equity loan that's
used to generate taxable short-term investment income (not
rental income). When computing his deductions, is he
limited by the $100k home equity deduction limit? Or can
he deduct the full $200k as investment interest expense
(4952)? I believe it's the latter provided the interest
expense is traceable to the investment, but I wanted
confirmation nonetheless. Can anyone elaborate?
|
The first $100,000 of home equity debt is automatically
treated as such. You have to elect out of that treatment in
order to trace the use of all the debt.
1.163-10T(o)(5)
(5) Election to treat debt as not secured by a
qualified residence--(i) In general. For purposes of this
section, a taxpayer may elect to treat any debt that is
secured by a qualified residence as not secured by the
qualified residence. An election made under this paragraph
shall be effective for the taxable year for which the
election is made and for all subsequent taxable years unless
revoked with the consent of the Commissioner.
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
|
| Back to top |
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David Woods, EA, ChFC, CL
Guest
|
| Posted:
Thu Oct 27, 2005 8:00 am Post subject:
Re: home equity interest as investment interest expense |
|
|
"Mark Rigotti" <rigotti@wideopenwest.com> wrote:
| Quote: | "Doug" <mediavalley2000@yahoo.com> wrote:
Suppose an individual has a $200k home equity loan that's
used to generate taxable short-term investment income (not
rental income). When computing his deductions, is he
limited by the $100k home equity deduction limit? Or can
he deduct the full $200k as investment interest expense
(4952)? I believe it's the latter provided the interest
expense is traceable to the investment, but I wanted
confirmation nonetheless. Can anyone elaborate?
Perhaps - though I would suspect not. I believe that the
debt tracing rules would have to apply and in that case the
proceeds of the debt were not properly seperated to allow
this.
Check out the debt tracing rules - which I suspect would
apply - were you to attempt to take this position.
|
I don't see what the problem is. Poster said the equity
loan is used to generate short-term investment income. What
is there to separate??
--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
|
| Back to top |
|
|
Drew Edmundson
Guest
|
| Posted:
Thu Oct 27, 2005 8:00 am Post subject:
Re: home equity interest as investment interest expense |
|
|
"Doug" <mediavalley2000@yahoo.com> wrote:
| Quote: |
Suppose an individual has a $200k home equity loan that's
used to generate taxable short-term investment income (not
rental income). When computing his deductions, is he
limited by the $100k home equity deduction limit? Or can
he deduct the full $200k as investment interest expense
(4952)? I believe it's the latter provided the interest
expense is traceable to the investment, but I wanted
confirmation nonetheless. Can anyone elaborate?
|
The first $100,000 of home equity debt is automatically
treated as such. You have to elect out of that treatment in
order to trace the use of all the debt.
1.163-10T(o)(5)
(5) Election to treat debt as not secured by a qualified
residence--(i) In general. For purposes of this section, a
taxpayer may elect to treat any debt that is secured by a
qualified residence as not secured by the qualified
residence. An election made under this paragraph shall be
effective for the taxable year for which the election is
made and for all subsequent taxable years unless revoked
with the consent of the Commissioner.
<< ======================================================= >>
<< The foregoing is intended for educational purposes only >>
<< and does NOT constitute legal OR professional advice. >>
<< >>
<< The Charter and the Guidelines for submitting >>
<< messages to this newsgroup are at www.asktax.org. >>
<< Copyright (2005) - All rights reserved. >>
<< ======================================================= >> |
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