Mortgage Interest & 10T Election - Spidell

Mortgage Interest & 10T Election

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Message Board Mortgage Interest & 10T Election

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    • #186874
      Leslie Martin
      Participant

      Taxpayer has a primary residence and rental real estate. The remaining mortgage on his home was $100K, and a rental condo had a $300K mortgage. Both mortgages were with the same bank. According to TP, the bank contacted him and said they were concerned about the condo loan. They told him to consolidate the two loans into one loan secured by his home, which he did. Now he has a $400K mortgage secured by his home, but $300K of it should be attributed to his Schedule E rental condo. (All of this happened in 2018 before he was my client.)

      I just reviewed the information from the 2019 Real Estate Update & Review book, and I’m not quite sure how best to apply the information to this situation. Is this a case where a 10T election is useful, or a bad idea? Can the interest on the loan be properly allocated 25% to his residence and 75% to the rental condo without it? Is there any disclosure that should be included?

    • #187067
      Mike Giangrande
      Participant

      Leslie,

      You can trace the interest to the Schedule E rental condo without the 10T election. No disclosure is required on the income tax return.

    • #187425
      Gerald Weiss
      Participant

      Mike,

       

      CCM 2012201017 supports the allocation of interest without a 10T election, but only for “excess interest” ie interest on the debt that exceeds that applicable limtitation ($750,000 with TCJA). Since the debt here is $400K well below the $750K limit what support do you have for using the simplified method in this case?

      If the simplified method cannot be used, then a 10T election would be on the whole $400K loan, resulting in only Schedule E interest on $300K  debt and no Schedule A interest on the $100K debt.

       

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