Required to Deduct 1098?

Forum|Forum|5 years ago
April 9, 2021
1 reply
3 views

Folks:

Clients purchased their residence before 2017 and purchased a second home in 2020. Debt on House1 is $650,000 and debt on House2 is $450,000.

If Clients claim a deduction for home interest on House1, their net tax obligation is X.

If Clients also claim a deduction for home interest on House2, their net tax obligation is is >X. It increases because of the proportionate allocation of the deduction associated with the cap of $750,000 on deductible home debt.

Are clients required to seek the deduction on interest paid for House2? Does the pro rata apply even if they don't do so?

Thanks.

Micah

Lacerte Tax

This topic has been closed for replies.

rbynaker

Level 13

The taxpayer may elect to treat a qualifying residence as a second residence for the purposes of deducting mortgage interest. Sounds like in this case they should elect NOT to do so.

The math is weird, it follows ancient "temporary" regulations that were never made permanent so you can get into this situation in the first year of a second home. Just ignore the second home the first year and the math will return to "normal" next year (i.e. you'll bump into the $750K limit). There can also be ongoing problems if the interest rate on the second residence is lower than the first because, averaging.

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