Thursday, August 26, 2010

IRS Warns of Limits on Mortgage Deductions

Washington, D.C. - The Internal Revenue Service is cautioning taxpayers about restrictions on home mortgage interest deductions. "The IRS reminds taxpayers that interest deductions on home mortgages are limited, including limitations for home acquisition and home equity indebtedness," said IRS Headliner Volume 299. "There is one limit for loans used to buy, build, or substantially improve a residence - called home acquisition debt. There is another limit for loans secured by a qualified residence but used for other purposes - called home equity debt. Internal Revenue Code Section 163(h)(3) provides guidance for the limitations on the home mortgage interest deduction."

"The law allows taxpayers to deduct interest on two categories of indebtedness secured by the residences. Acquisition indebtedness is used to acquire, construct or substantially improve a residence, and cannot exceed $1,000,000. Home equity indebtedness is any [other] debt, and cannot exceed $100,000."

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