TeleTech wrote:

- quote -

As this is a tax related group, I'll deal only with the tax
issues. Obviously, the underlying economics are another
issue entirely, which depends on the various terms being
offered for each type of loan.

From a tax perspective, if nothing more happens than you
have described, then it makes no difference. The interest
paid on either the mortgage you take out to acquire the
house or the home equity loan you take out to improve it
will be deductible. As the home equity loan is being used
to improve the residence, it also appears likely it will be
deductible for alternative minimum tax purposes and would
also likely be deemed "acquisition indebtedness" for
purposes of the limits on deductibility (so you could have
up to $1 million in debt vs. $100,000 for home equity only).

Now, if you were planning on taking on any other home equity
debt and not using it to improve the home (say refinancing a
car debt or something similarly not deductible like buying a
car <grin> ), then it would make some tax sense to "reserve"
the cash and take out a mortgage at acquisition. The
interest on the mortgage would be deductible for all
purposes, while home equity would face the $100,000 overall
limitation and nondeductibility for AMT purposes.

However, as I note, most likely there is going to be no real
tax difference going either way.

--
Ed Zollars, CPA
Phoenix, Arizona

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We (husband and wife, joint filing) will be moving to
another state after having lived continuously in our
one-family home since 2001.

We paid $190k in 2001 and will be selling for about $350k.

We will be paying off the mortgage of about $160k, which
leaves us with about $187k.

We will be purchasing a new home for about $150k, which
leaves us with about $37k.

We plan on renovating the new home, which will cost at least
$50k.

Should we:
-- pay cash for the house and then take out a home-equity
loan?

-- pay some cash and mortgage the rest in order to use the
remaining cash toward renovations?

-- use some other combination?

P.S. Closing costs and moving are not included in the
above-listed figures. Are any of those deductible?

Thanks for your time!

--
NOTE: To reply, DELETE the obvious word in my e-mail address
you need to DELETE in order to reply.

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