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Home mortgage interest deduction.

According to the FTB, audits of tax returns with large home mortgage interest deductions indicate that many taxpayers and tax practitioners are not complying with the rules regarding debt limitations on the deductibility of home mortgage interest.

Home mortgage interest deduction is governed under IRC Sec. 163.

To fully deduct the home mortgage interest, the interest must be paid on acquisition or equity debt. The aggregate amount treated as acquisition debt for any period shall not exceed $1 million or $500,000 in the case of a married individual filing a separate return. The maximum aggregate amount of home equity debt for any period is $100,000, or $50,000 in the case of a married individual filing a separate return.

Therefore, the aggregate amount of the principal balance of all the mortgage loans used in computing the deductible home mortgage interest may not exceed $1.1 million, or $550,000 in the case of a married individual filling a separate return.

The acquisition debt or the home equity debt must be secured by the principal residence of the taxpayer, or one other residence of the taxpayer used as a residence and selected by the taxpayer for the taxable year.

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Title Annotation:news & trends
Publication:California CPA
Date:Jan 1, 2009
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