Publication 936 - Home Mortgage Interest Deduction - Department Of Treasury - 2004 Page 8
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The tenant-stockholders must pay at least
fied loan limit. This is the part of your home
incurred within 24 months before the date
80% of the corporation’s gross income for
mortgage debt that is grandfathered debt or that
of the mortgage.
the tax year. For this purpose, gross in-
is not more than the limits for home acquisition
3. You build or improve your home and take
come means all income received during
debt and home equity debt. Table 1 can help you
out the mortgage within 90 days after the
the entire tax year, including any received
figure your qualified loan limit and your deducti-
work is completed. The home acquisition
before the corporation changed to cooper-
ble home mortgage interest.
debt is limited to the amount of the ex-
ative ownership.
penses incurred within the period begin-
Home Acquisition Debt
ning 24 months before the work is
Stock used to secure debt. In some cases,
completed and ending on the date of the
Home acquisition debt is a mortgage you took
you cannot use your cooperative housing stock
mortgage. (See Example 2.)
out after October 13, 1987, to buy, build, or
to secure a debt because of either:
substantially improve a qualified home (your
•
Restrictions under local or state law, or
Example 1. You bought your main home on
main or second home). It also must be secured
June 3 for $175,000. You paid for the home with
•
by that home.
Restrictions in the cooperative agreement
cash you got from the sale of your old home. On
If the amount of your mortgage is more than
(other than restrictions in which the main
July 15, you took out a mortgage of $150,000
the cost of the home plus the cost of any sub-
purpose is to permit the tenant-stock-
secured by your main home. You used the
stantial improvements, only the debt that is not
holder to treat unsecured debt as secured
$150,000 to invest in stocks. You can treat the
more than the cost of the home plus improve-
debt).
mortgage as taken out to buy your home be-
ments qualifies as home acquisition debt. The
However, you can treat a debt as secured by the
cause you bought the home within 90 days
additional debt may qualify as home equity debt
stock to the extent that the proceeds are used to
before you took out the mortgage. The entire
(discussed later).
buy the stock under the allocation of interest
mortgage qualifies as home acquisition debt be-
rules. See chapter 5 of Publication 535 for de-
Home acquisition debt limit. The total
cause it was not more than the home’s cost.
tails on these rules.
amount you can treat as home acquisition debt
at any time on your main home and second
Example 2. On January 31, John began
Figuring deductible home mortgage interest.
home cannot be more than $1 million ($500,000
building a home on the lot that he owned. He
Generally, if you are a tenant-stockholder, you
if married filing separately). This limit is reduced
used $45,000 of his personal funds to build the
can deduct payments you make for your share
(but not below zero) by the amount of your
home. The home was completed on October 31.
of the interest paid or incurred by the coopera-
grandfathered debt (discussed later). Debt over
On November 21, John took out a $36,000 mort-
tive. The interest must be on a debt to buy, build,
this limit may qualify as home equity debt (also
gage that was secured by the home. The mort-
change, improve, or maintain the cooperative’s
discussed later).
gage can be treated as used to build the home
housing, or on a debt to buy the land.
because it was taken out within 90 days after the
Figure your share of this interest by multiply-
Refinanced home acquisition debt. Any se-
home was completed. The entire mortgage
ing the total by the following fraction.
cured debt you use to refinance home acquisi-
qualifies as home acquisition debt because it
tion debt is treated as home acquisition debt.
was not more than the expenses incurred within
Your shares of stock in the
However, the new debt will qualify as home
the period beginning 24 months before the
cooperative
acquisition debt only up to the amount of the
home was completed. This is illustrated by Fig-
The total shares of stock in
balance of the old mortgage principal just before
ure C.
the cooperative
the refinancing. Any additional debt is not home
acquisition debt, but may qualify as home equity
Figure C.
Limits on deduction. To figure how the lim-
debt (discussed later).
its discussed in Part II apply to you, treat your
Home
share of the cooperative’s debt as debt incurred
Mortgage that qualifies later. A mortgage
John
Completed
by you. The cooperative should determine your
that does not qualify as home acquisition debt
Starts
($45,000 in
$36,000
share of its grandfathered debt, its home acqui-
because it does not meet all the requirements
Building
Personal
Mortgage
sition debt, and its home equity debt. (Your
may qualify at a later time. For example, a debt
Home
Funds Used)
Taken Out
share of each of these types of debt is equal to
that you use to buy your home may not qualify
the average balance of each debt multiplied by
as home acquisition debt because it is not se-
the fraction just given.) After your share of the
cured by the home. However, if the debt is later
Jan. 31
Oct. 31
Nov. 21
average balance of each type of debt is deter-
secured by the home, it may qualify as home
mined, you include it with the average balance of
acquisition debt after that time. Similarly, a debt
that type of debt secured by your stock.
that you use to buy property may not qualify
because the property is not a qualified home.
Form 1098. The cooperative should give
9 Months
22 Days
However, if the property later becomes a quali-
you a Form 1098 showing your share of the
(Within 24 Months)
(Within 90 Days)
fied home, the debt may qualify after that time.
interest. Use the rules in this publication to de-
termine your deductible mortgage interest.
Mortgage treated as used to buy, build, or
Date of the mortgage. The date you take
improve home. A mortgage secured by a
out your mortgage is the day the loan proceeds
qualified home may be treated as home acquisi-
are disbursed. This is generally the closing date.
Part II. Limits on
tion debt, even if you do not actually use the
You can treat the day you apply in writing for
proceeds to buy, build, or substantially improve
your mortgage as the date you take it out. How-
Home Mortgage
the home. This applies in the following situa-
ever, this applies only if you receive the loan
tions.
proceeds within a reasonable time (such as
Interest Deduction
within 30 days) after your application is ap-
1. You buy your home within 90 days before
proved. If a timely application you make is re-
or after the date you take out the mort-
jected, a reasonable additional time will be
This part of the publication discusses the limits
gage. The home acquisition debt is limited
allowed to make a new application.
on deductible home mortgage interest. These
to the home’s cost, plus the cost of any
limits apply to your home mortgage interest ex-
substantial improvements within the limit
Cost of home or improvements. To deter-
pense if you have a home mortgage that does
described below in (2) or (3). (See Exam-
mine your cost, include amounts paid to acquire
not fit into any of the three categories listed at
ple 1.)
any interest in a qualified home or to substan-
the beginning of Part I under Fully deductible
tially improve the home.
interest.
2. You build or improve your home and take
Your home mortgage interest deduction is
out the mortgage before the work is com-
The cost of building or substantially improv-
limited to the interest on the part of your home
pleted. The home acquisition debt is lim-
ing a qualified home includes the costs to ac-
mortgage debt that is not more than your quali-
ited to the amount of the expenses
quire real property and building materials, fees
Page 8
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