Some people who owe more than $1 million on their homes are coming under the microscope at the IRS over how much of their mortgage interest they can deduct on their tax returns.
David A. Lifson, a certified public accountant at Crowe Horwath LLP in New York, said he has worked with clients caught up in these “mini-audits.” In past six months, he said, the Internal Revenue Service also has notified many people that it is looking at their mortgage interest write-offs.
The number of taxpayers involved could be in the tens of thousands, he said. In some parts of the country, such as the New York City area and parts of California, many homes sell for more than $1 million and even a buyer who puts down 20% or 30% may be obliged to borrow that much.
IRS guidance in June helped set the rules straight. The agency said acquisition loans over $1 million may also qualify as home equity indebtedness.
Now it is clear a taxpayer can deduct interest on $1.1 million, said Melissa Labant, tax technical man¬ager at the American Institute of Certified Public Accountants, even if he has only one loan. The development, she added, is “good news for taxpayers.” The IRS did not immediately comment.
The rules can get “particularly complex for a mere mortal” when various refinancings get thrown into the mix, and the taxpayer owns several homes, say a house in upstate New York and a condominium in New York, according to Lifson. Tax rules generally allow deductions on a first and second home, but not a third or more.
The amount of interest at stake is substantial, up to $50,000 to $60,000 on a $1.1 million mortgage. Not just the very wealthy are involved, but many of the simply affluent, too.
