Late last year Joyce and John purchased a one-bedroom condo in Manhattan for $1.
ID: 2449341 • Letter: L
Question
Late last year Joyce and John purchased a one-bedroom condo in Manhattan for $1.4 million, paying $600,000 in cash and borrowing $800,000, secured by a mortgage on the condo. This year, they pay $40,000 in aggregate interest on this loan. On April 1 of this year, they purchase a second, small home in the Hamptons (on Long Island) for $700,000, paying $400,000 in cash and borrowing $300,000, secured by a mortgage on the home. They pay $10,000 in aggregate interest for the 9 full months that they own the property this year. How much of the $40,000 interest paid on their Manhattan condo mortgage and the $10,000 interest paid on their Hampton home mortgage can they deduct this year under § 163(h)(3)?
Same as 1., except that Joyce and John purchase only the Hampton home, not the Manhattan condo. (They rent, rather than own, their Manhattan condo, instead.) After purchasing the Hampton home in March, they had no plans to renovate the home, as they liked its gently worn appearance. At least, they thought they did. By September, they are tired of the look and decide that it needs substantial improvements, after all. Thus, they hire an architect, designer, and contractor to design and construct a substantial addition to the home, as well as to renovate the old kitchen and bathrooms. The entire project cost is $400,000, all of which is funded by a second mortgage on the home, secured by the home. Thus, in addition to the $10,000 that they pay on the first mortgage this year, they also pay $6,000 in interest for the 4 months of payments on the second mortgage this year. How much of the these interest payments can they deduct this year under § 163(h)(3)?
Explanation / Answer
Answer 1 : As read § 163 (h) (3) (B) and § 163 (h) (4) it is clear that If property mortgage secured by a residence ( As per § 163 (h) (4) residence means Principal residence and one other residence) they qualifed for interst deduction if indebtness does not exceed for $ 1,000,000.
In This case Total aggregate indebtness amount is 1,100,000 (800,000+300,000). So they qualified for one residence. If they show manhattan residence as a principal residence they qualified for $ 40000 as home mortage deuction.
Answer -2 As read § 163 (h) (3) (B) & (C) and § 163 (h) (4) it is clear that If property mortgage secured by a residence ( As per § 163 (h) (4) residence means Principal residence and one other residence) they qualifed for interst deduction if indebtness does not exceed for $ 1,000,000.
If they declare Hampton residence is principal residence they qualifed for $ 16000 (10000+6000) as home mortage deduction.
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