Re: Taking our a Home Equity Loan to pay off debts

$cott wrote:
> The book is more about creating abritrage then anything else. The book
> doesn't suggest taking a home equity loan it suggest seperating equity
> from the home; the book favors investing the home equity into an
> investment yielding a higher interest rate then the mortgage rate over
> converting non-deductible consumer debt into deductible mortgage
> interest (although the author makes a compelling argument for the
> conversion of non-secured consumer debt into mortgage interest). If
> you had plans to pay off your consumer debt and car in 5 years and are
> disciplined enough to stick to these plans, converting it to mortgage
> interest with the same intent (of paying it off in 5 years) only makes
> sense.
>
> Regards,
>
> Scott Miller
> Commercial and Residential Lender/Broker
>
> www.EZMortgageLoanz.com
> www.RealEstate-IQ.com


Once again - as long as you factor in the effect of the AMT for the
equity interest!

Using equity loan proceeds for anything other than the acquistion or
improvement of your principal home requires the interest to be treated
as an AMT adjustment item. If you use the proceeds to purchase
investments then the investment interest rules MAY apply.

Our of curiosity, when you talk to your clients about home equity loans
do you warn them about the possibility of AMT being an issue?

Be careful,
Gene E. Utterback, EA, RFC

Re: Taking our a Home Equity Loan to pay off debts

May I respectfully suggest that you also point your clients to IRS
Publication 909. I don't have the page number since I access this
document electronically. But there is a small section devoted to this
item - it reads:

"CERTAIN HOME MORTGAGE INTEREST (LINE 4). For AMT purposes, you cannot
deduct interest on a home mortgage:

* Taken out after June 30, 1982, and used for a purpose other than
to
buy, build, or substantially improve your main home or qualified
dwelling that is your second home, or

* Taken out before July 1, 1982, and secured by property that, when
you
got the mortgage, was other than your main home or a qualified
dwelling used by you or a member of your family.

A qualified dwelling is any house, apartment, condominium, or mobile
home
not used on a transient basis.

If you refinanced your mortgage after June 30, 1982, for an amount
in
excess of your original mortgage, you cannot deduct the interest
related to the excess.

Enter on line 4 of Form 6251 the total included on lines 9a, 9b, and
10
of Schedule A for these home mortgage interest items."

As a tax professional, I do appreciate your diligence in advising your
clients to get professional advice. Unfortunately, too many people
today think they can prepare their own returns without professional
assistance. While some can do a good job, many more do an incomplete
job.

I'm finding that almost all of my "new" clients have had some IRS
difficulty and are coming to me now because their versions of the
return raised flags that caused them more in penalties and interest
than my fee would have been.

Regards,
Gene E. Utterback, EA, RFC


$cott wrote:
> What do I tell my clients:
>
> "IRS Publication 936 (page 11) stipulates an allowance for mortgage
> interest deductions on home equity debt not to exceed 100K (50K for
> unmarried/single filers). If the proceeds of the HELOC or second
> mortgage are used for investment, business or another deductible event,
> the interest may also deductible. These matters should be reviewed
> with a tax professional in order to determine the extent of
> deductability for your particular circumstances. Do you have an
> accountant? (If no, I refer them to one of my partners for a free real
> estate tax review)"
>
> I'm careful to give advice on what I know and outsource what I don't.
>
> Regards,
>
> Scott Miller
> Commercial and Residential Lender/Broker
>
> www.RealEstate-IQ.com
> www.EZMortgageLoanz.com
>
>
>
> >
> >
> > Once again - as long as you factor in the effect of the AMT for the
> > equity interest!
> >
> > Using equity loan proceeds for anything other than the acquistion or
> > improvement of your principal home requires the interest to be treated
> > as an AMT adjustment item. If you use the proceeds to purchase
> > investments then the investment interest rules MAY apply.
> >
> > Our of curiosity, when you talk to your clients about home equity loans
> > do you warn them about the possibility of AMT being an issue?
> >
> > Be careful,
> > Gene E. Utterback, EA, RFC