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I own a home that was my primary residence for 20 years. Since I never refinanced and given the appreciation, I now have a very small amount left on the mortgage and a great deal of principal in the property. My husband owns a recently purchased home which is heavily mortgaged and which is now our primary residence while my property is rented out and bringing in a very nice income. My question is which would give me the better tax break - a larger mortgage on the primary residence or on the rental property. I could easily mortgage either one and totally pay off the other. Our income is in the 31% bracket.
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I own a home that was my primary residence for 20 years. Since I
never refinanced and given the appreciation, I now have a very small
amount left on the mortgage and a great deal of principal in the
property. My husband owns a recently purchased home which is
heavily mortgaged and which is now our primary residence while my
property is rented out and bringing in a very nice income. My
question is which would give me the better tax break - a larger
mortgage on the primary residence or on the rental property. I could
easily mortgage either one and totally pay off the other. Our income
is in the 31% bracket.


This is a tough one to answer due to the phase-out of deductions for high income people. Without that it wouln't make any difference if you otherwise could take deductions (Schedule A). The interest expense on the rental would be the same as a personal deduction for home mortgage, however, as rental interest it would be a larger deduction from net income if you can't take deductions, or are subject to the phase-out. ed
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You may want to consider that you can avoid a large capital gain on the sale of whichever is your residence. For this you have to have lived in it for a period of time - 3 years, I think. Moving to the home with the large equity and capital gain may save big tax bucks. I presume that the home you are living in has a much smaller capital gain.
An AARP tax advisor would be more definite about this than this amateur can.
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