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TAX DEDUCTION ISSUES DISCUSSED ON REFINANCING A HOME

 TAX DEDUCTION ISSUES DISCUSSED ON REFINANCING A HOME
 JENKINTOWN, Pa., March 9 /PRNewswire/ -- When homeowners refinance


their homes, here is what they need to do to insure the tax deductibility of the new interest payments and refinancing points.
 According to Richard R. Shavell, CPA, tax manager at the Jenkintown- based accounting and management consulting firm Zelenkofske, Axelrod & Co., Ltd., "The key to deducting any home mortgage interest or points is that the loan must be considered acquisition indebtedness (AI), which means that the loan proceeds are being used for the purchase of a principal residence and secured by that residence's mortgage or home improvement. The AI also cannot exceed $1 million and any excess home equity loan amounts cannot exceed $100,000. If your loan meets this AI stipulation, you can deduct any interest paid on you home's purchase or improvement loan. Now, if you refinance your home for more than your current loan amount, you can only classify the amount of your loan that you paid off as AI. The next $100,000 is then considered as home equity debt. And the interest on the AI and $100,000 home equity is definitely deductible. There are, however, other issues that could limit the deductibility of any second mortgage amounts in excess of this. This will vary based on how the second mortgage proceeds are being used."
 As an example, Shavell told how one homeowner has a home worth $250,000 with an existing mortgage of $50,000. When he refinances a loan for $175,000, the interest on the first $50,000 (considered AI as it replaces the original loan amount) is deductible as is the interest on the next $100,000 (considered home equity). The interest on the remaining $25,000 may or may not be deductible.
 Shavell continued, "When it comes to deducting points on a refinance, two prerequisites exist. First, the borrower must pay the points out of his/her own cash rather than funding these into the new loan. Second, the proceeds from the refinance must be used to improve the home. And since the IRS is now tracking points on home purchases (by way of Form 1098) but not yet on home improvement loans (lenders are not required to report this), the IRS computer may question point deductions where there is no corresponding Form 1098. As a result, the burden for accurate record-keeping falls on the taxpayer."
 /delval/
 -0- 3/9/92
 /CONTACT: Ellen Toplin of Toplin & Associates, 215-886-4644, for Zelenkofske, Axelrod & Co., Ltd./ CO: Zelenkofske, Axelrod & Co., Ltd. ST: Pennsylvania IN: SU:


KA-MP -- PH014 -- 6312 03/09/92 10:33 EST
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Publication:PR Newswire
Date:Mar 9, 1992
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