Here are a few special situations you may encounter. -If you have a second home that you rent out for part of the year, you must use it for more than 14 days, or for more than 10% of the number of days you rented it out at fair market value (whichever number of days is larger) for the home to be considered a second home for tax purposes. If you use the home less than the required number of days, your home is considered a rental property, not a second home. -You may treat a different home as your second home each tax year, provided each home meets the qualifications as your residence. -If you live in a house before your purchase becomes final, any payments you make for that period of time are considered rent. You cannot deduct those payments as interest even if the settlement papers label the payments as interest. -If you used the proceeds of a home loan for business purposes, enter that interest on Schedule C if you are a sole porprietor, and on Schedule E if used to purchase rental property. The interest is attributed to the activity for which the loan proceeds were used. -If you own rental property and borrow against it to buy a home, the interest does not qualify as mortgage interest because the loan is not secured by the home itself. Interest paid on that loan can’t be deducted as a rental expense either, because the funds were not used for the rental property. The interest expense is actually considered personal interest, which is no longer deductible. -If you used the proceeds of a home mortgage to purchase or “carry” securities that produce tax-exempt income (municipal bonds) or to purchase single premium (lump sum) life insurance or annuity contracts, you cannot deduct the mortgage interest. (The term “to carry” means you have borrowed the money to substantially replace other funds used to buy the tax-free investments or insurance).
Viewed 328 Times 0 Comments Date : 17.11.2009
Was this answer helpful ? Yes (0) / No (0)