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January 2007

• Jan. 21, 2007 - Mortgage Interest deduction

Now that the holidays are over and the football season is coming to a close, it is time to start getting ready for tax season. One of great benefits of home ownership is that interest on loans and property taxes are deductible…. to a point. Gone are the days, however, when all interest on homes loans is tax deductible. Now only interest on acquisition debt up to $1 million plus equity debt of an additional $100,000 is deductible. In most parts of the country, that is considered to be very generous, but in the rarified real estate environment that we live in, here I the mid-San Francisco Peninsula, $1 million will barely buy you a modest (very modest) starter home. So you have to be careful how you structure your loans and how you use the equity portion as well. Many people mistakenly believe that all mortgage interest up to $1 million plus $100,000 is tax deductible, but that is not always the case. Acquisition debt is usually the original (purchase) mortgage amount plus debt incurred to make capital improvements, minus principal reduction from payments already made. So, if you obtained a mortgage of $500,000 to purchase your home, pay it down to $300,000, and then decide to borrow another $300,000 to invest in some income property, it may turn out that only the interest on the first $400,000 is deductible ($300,000 remaining from the original purchase plus $100,000 in equity) and the interest on the remaining $200,000 is not. OR, if you buy a home worth $1,200,000, put 50% down, and finance the remaining $600,000 and later decide to borrow an additional $400,000 to pay off a medical bill, you may only be able to deduct interest on whatever remains of the original loan plus $100,000. Many people who understand that will finance as much of the house as possible… up to $1 million plus $100,000 and save their cash for other purposes. When in doubt, always consult with a qualified tax consultant, as mistakes can be costly and the IRS is very unforgiving!
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Selling real estate in the mid San Francisco peninsula is unlike selling real estate in any other area. Just as the geographical area is famous for its microclimates, the real estate landscape has its own microclimates, each with its own idiosyncracies. An experienced agent will be in tune with the subtle variations from one subarea to another. But it is always changing. In this blog I will attempt to capture some items of interest to buyers and sellers alike, and to have some fun as well (see ""Fun Stuff"). If you have information you would like to have posted on this website, please email your suggestios to Lmercer@Lmercer.com.

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