[molardoc]

I am interested in purchasing a condo. I am also refinancing my primary residence. Is it better to refi and take the money out for the purchase of the condo in one loan or is it better to get 2 separate loans. Which one do I get a better tax writeoff

[smoothy]

You don't get ANY tax write off on the second home mortgage... only your primary residence.

And its not what you might want to do... its going to be on what you might find a financial institution willing to do these days.

You might be wanting to talk to some banks and find out what you might be able to do, and plan accordingly.

What you could do 5 years ago and what you can do today can be VERY different things.

[Magpie95]

Refinancing your home as a cash out, which is what I believe you are asking, is nearly impossible these days. There are even less Home Equity lines of credit even with the needed credit and DTI. I use to be a sub-prime mortgage closing manager... and believe me, smoothy is right. Banks have tighten up a lot. I would have to know more details to tell you exactly. As far as a tax break, if you can afford two homes, Uncle Sam isn't going to cut you slack on the second, unless it is an investment property that you claim as a loss.

[ebaines]

You don't get ANY tax write off on the second home mortgage...only your primary residence.

Wrong! You may deduct mortgage interest and real estate taxes on a second home (but not a third).

molardoc: my advice is to finance these separately - otherwise you'll have issues paying off the loan on the condo if/when you sell one or the other property. Also, by adding the amount of the loan on the condo to the mortgage on your primary residence you may find that the total amount of principal puts your primary residence close to being "under water," which in turn would make future refinancing impossible. Also there is no tax advantage for trying to combine both loans into one - you can deduct taxes and mortgage interest regardless.

[smoothy]

Wrong! You may deduct mortgage interest and real estate taxes on a second home (but not a third).

My advice is to finance these separately - otherwise you'll have issues paying off the loan on the condo if/when you sell one or the other property. Also, by adding the amount of the loan on the condo to the mortgage on your primary residence you may find that the total amount of principal puts your primary residence close to being "under water," which in turn would make future refinancing impossible. Also there is no tax advantage for trying to combine both loans into one - you can deduct taxes and mortgage interest regardless.

When did they start that? Allowing the deduction for second homes? Because I know people with several homes that were not allowed the deduction? Perhaps there are specific conditions required to be allowed to they didn't meet? In fact when I almost bought a second investment house over a decade ago... I was told that as well by my accountant because that kept me from being able to swing it besides the higher rates for a second home mortgage.

[Magpie95]

When did they start that? Allowing the deduction for second homes? Because I know people with several homes that were not allowed the deduction? Perhaps there are specific conditions required to be allowed to they didn't meet? In fact when I almost bought a second investment house over a decade ago...I was told that as well by my accountant because that kept me from being able to swing it besides the higher rates for a second home mortgage.

This applies to a write off interest and property taxes. However, if the property is in a homestead state, the exemption on taxes can only be on the primary residence. Here at work (I work for a large mortgage lender), we are constantly having to pull records for homestead exemptions, only to find the person owns another home and lists it as their primary residence. In those cases, the county where we retrieve the tax certificate will deny the exemption. So, it all depends on where you live... if you are going to rent it out when you aren't using it. If so, how many days a year will it be rented, etc.
Typically, if your rent it for less than 2 weeks a year, you can pocket the rent tax free. Also, you can deduct the improvements/repairs made to a rental property.

[ebaines]

When did they start that? Allowing the deduction for second homes?

I've been doing it for the past 10 years, so at least that long! The rules for deducting mortgage interest include that the property must be "at risk" in case of default on the loan, and the loan must be for purposes of buying, building, or improving the property, so for example if the source of money is a personal loan then it's not deductible. For details see IRS Pub 530: http://www.irs.gov/pub/irs-pdf/p530.pdf

Because I know people with several homes that were not allowed the deduction? Perhaps there are specific conditions required to be allowed to they didn't meet? In fact when I almost bought a second investment house over a decade ago...I was told that as well by my accountant because that kept me from being able to swing it besides the higher rates for a second home mortgage.

You mention friends with "several" properties - again, this applies only to a first or second personal home that is NOT rental or business property. For investment properties you would include expenses such as loan interest and property tax as business expenses on Schedule C.

[smoothy]

I've been doing it for the past 10 years, so at least that long! The rules for deducting mortgage interest include that the property must be "at risk" in case of default on the loan, and the loan must be for purposes of buying, building, or improving the property, so for example if the source of money is a personal loan then it's not deductible. For details see IRS Pub 530: http://www.irs.gov/pub/irs-pdf/p530.pdf



You mention friends with "several" properties - again, this applies only to a first or second personal home that is NOT rental or business property. For investment properties you would include expenses such as loans and property tax as business expenses on Schedule C.

Thanks for the clarification... that explains why myself and the people I spoke of were told we couldn't deduct it...

[Magpie95]

I've been doing it for the past 10 years, so at least that long! The rules for deducting mortgage interest include that the property must be "at risk" in case of default on the loan, and the loan must be for purposes of buying, building, or improving the property, so for example if the source of money is a personal loan then it's not deductible. For details see IRS Pub 530: http://www.irs.gov/pub/irs-pdf/p530.pdf



You mention friends with "several" properties - again, this applies only to a first or second personal home that is NOT rental or business property. For investment properties you would include expenses such as loan interest and property tax as business expenses on Schedule C.

Thanks for the link! I was not aware of this info as it relates to the IRS, only the tax assessor side of things. Very informative.