Taxes and Mortgage Debt

from www.bankrate.com
Taxes and mortgage debtFriday August 3, 6:00 am ET George Saenz
Dear Tax Talk:I purchased my condo with cash in 2003. Can I obtain a mortgage at this time and deduct the interest? I read somewhere that if a property is not mortgaged within a certain time period, the interest is not deductible.--Dr. RobertDr. Robert,There are basically two types of home mortgage debts on which interest is deductible:1. Home acquisition debt2. Home equity debt
Home acquisition debt is debt you take out to buy your home or substantially improve it. The interest on up $1 million in acquisition debt is deductible. Acquisition debt is only mortgage debt secured by your main or second home that was taken out within 90 days of purchasing the property. Hence, any debt you take out now on the condo will not be considered acquisition debt (unless for substantial improvements) and the interest will not be deducted as such. However, it may qualify as home equity debt within those limitations.
If you take out a loan for reasons other than to buy, build or substantially improve your home, it may qualify as home equity debt. The interest on up to $100,000 of home equity debt is deductible provided it is secured by your first or second home. For example, if you take out a $50,000 mortgage to pay for your child's tuition, you can deduct the interest as home mortgage interest. If you take out an additional $100,000 on the mortgage to redo the kitchen and baths of the condo, you can deduct the interest on the full $150,000 since $100,000 is considered acquisition debt.