- quote -

Probably not, since, short of an audit, they won't have the
loan agreement.

I worded my answer the way I did because it's quite possible
that you may have paid off part of the acquisition
principal. If the principal is paid down to $100k when you
then refinance it and take $275k out, then you get $100k as
acquisition debt, $100k as equity debt, and $75k as
non-qualified debt (for which the interest isn't
deductible).

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Vernon V Chatman III wrote:
- quote -

No. Well, only if an additional loan was used to finance
an improvement. Loan limit increases are irrelevant.

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- quote -

Is such a distinction trackable by the IRS short of an audit
and/or identified on a 1098?

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"Arthur L. Rubin" <ronnirubin[at]sprintmail.com> wrote:
- quote -

I agree with you, but have a related question. If the
(revolving line of credit) loan was taken out before 1987
and the loan limit is increased due to re-appraisals, do
increases in the loan amount used escape the $100K
restriction?

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Doug wrote:

- quote -

Only the amount of the original loan outstanding carries
over as acquisition debt. The next $100K beyond that is
your equity debt. Beyond that, you lose.

Assuming that your $125k was an interest-only debt, the
maximum that you could refinance with deductibility is
$225k. If you then refinance that loan, you will still have
a maximum of $125k as acquisition debt and $100k of equity
debt. The only way to increase your acquisition debt
(towards its $1M cap) is to buy or build something you
didn't have before (that qualifies).

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- quote -

No. Only the interest on 125k is deductible as "acquisition
indebtedness", even if it is refinanced. You can also
deduct the interest on 100k as home equity indebtedness over
and above the amount of "acquisition indebtedness". Thus,
you can deduct interest on 225k and cannot deduct interest
on the 50k, which leaves you in the same place as you would
have been if you had not refinanced.

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Doug wrote:

- quote -

Unless a loan is actually for the purpose of buying the
house (or improvements), was taken out before 1987, or is
a refinance (at no more than the previous loan), of an
allowable loan, it is not deductible as "acquision interest".

So the answer is "no".

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I'm probably not the first person to think of this, but
please let me know what you think.

Suppose you bought a house w/ a 125k mortgage. Later, you
refi it with 150k cashout. Suppose the home is worth more
than this new 275k loan. The cashout portion is considered
home equity debt and 100k of it deductible. The remaining
50k isn't deductible.

But what if you refinanced the 275k mortgage. Is the entire
275k now deductible? I'm still confused after reading pub
936 twice. (That is one confusing publication!) Some parts
of 936 suggest the 275k is deductible, but I'm a bit
skeptical overall because it seems too easy to get past the
100k limitation on equity debt.

Thanks
Doug

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