Deducting accrued home mortgage interest


B

Brian

I am having a spirited discussion with one of my colleagues
about the deduction for home mortgage interest. I have
always believed that in order to deduct mortgage interest it
must be paid. He has directed me to IRS Code Section 163
which says:

Code section 163

(A) In general. The term "qualified residence interest"
means any interest which is paid OR ACCRUED during the
taxable year on—

(i) acquisition indebtedness with respect to any qualified
residence of the taxpayer, or

(ii) home equity indebtedness with respect to any qualified
residence of the taxpayer.

Obviously, I added the caps for emphasis. If this means what
it says, can a taxpayer merely sign a new note each year for
the unpaid interest and take a deduction? Or is this a case
of, you can take a deduction for accrued interest if you
happen to be a cash basis individual?

Please refer me to any section of the code that might
clarify this issue.

Thanks in advance,

Brian
 
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H

hlunsford

Brian said:
I am having a spirited discussion with one of my colleagues
about the deduction for home mortgage interest. I have
always believed that in order to deduct mortgage interest it
must be paid. He has directed me to IRS Code Section 163
which says:

Code section 163

(A) In general. The term "qualified residence interest"
means any interest which is paid OR ACCRUED during the
taxable year on—

(i) acquisition indebtedness with respect to any qualified
residence of the taxpayer, or

(ii) home equity indebtedness with respect to any qualified
residence of the taxpayer.

Obviously, I added the caps for emphasis. If this means what
it says, can a taxpayer merely sign a new note each year for
the unpaid interest and take a deduction? Or is this a case
of, you can take a deduction for accrued interest if you
happen to be a cash basis individual?
What it means is that if you are a cash basis taxpayer, you
deduct the interest when paid and if you are an accrual
basis taxpayer, you deduct it as it accrues.

In all my years of practice I never met an accrual basis
individual taxpayer. Has anyone?

ChEAr$,
Harlan Lunsford, EA n LA
 
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L

LTSLLC

I believe that the terms "paid" and "accrued" refer to
whether the taxpayer uses a cash basis or accrual basis.

At least that is how those terms are used for investment
interest so I am assuming they have the same meaning or
application for mortgage interest.

See page 33 of Publication 550 under "When to deduct
investment interest".

Rudy
www.LizcanoTaxServicesLLC.com
 
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M

Mr. Travel

Brian wrote:




What it means is that if you are a cash basis taxpayer, you
deduct the interest when paid and if you are an accrual
basis taxpayer, you deduct it as it accrues.

In all my years of practice I never met an accrual basis
individual taxpayer. Has anyone?
I don't see where Section 163 states the accrued interest can only be
deducted if you are an accrued based taxpayer?
 
S

Stuart Bronstein

Mr. Travel said:
(e-mail address removed) wrote:

I don't see where Section 163 states the accrued interest can only
be deducted if you are an accrued based taxpayer?
That's the basic definition of a cash as opposed to an accrual
taxpayer. Section 461(a) says,

"The amount of any deduction or credit allowed by this subtitle shall
be taken for the taxable year which is the proper taxable year under
the method of accounting used in computing taxable income."

Stu
 
D

D. Stussy

Stuart Bronstein said:
That's the basic definition of a cash as opposed to an accrual
taxpayer. Section 461(a) says,

"The amount of any deduction or credit allowed by this subtitle shall
be taken for the taxable year which is the proper taxable year under
the method of accounting used in computing taxable income."
....And is in contrast to verbage used in other sections such as 170A which
requires payment to be deductible - i.e. cannot be merely accrued (pledged).
 
S

Stuart Bronstein

D. Stussy said:
...And is in contrast to verbage used in other sections such as
170A which requires payment to be deductible - i.e. cannot be
merely accrued (pledged).
Section 170A? I couldn't find it. But if you're talking about
statutes dealing with specific types of income or deduction, those
would be exceptions, and would not diminish the general rule.

Stu
 
D

D. Stussy

Stuart Bronstein said:
Section 170A? I couldn't find it. But if you're talking about
statutes dealing with specific types of income or deduction, those
would be exceptions, and would not diminish the general rule.
Sorry for the brain Freeze: Section 170, and it's regulations 1.170A.
 
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I am having a spirited discussion with one of my colleagues
about the deduction for home mortgage interest. I have
always believed that in order to deduct mortgage interest it
must be paid. He has directed me to IRS Code Section 163
which says:

Code section 163

(A) In general. The term "qualified residence interest"
means any interest which is paid OR ACCRUED during the
taxable year on—

Brian. I was wondering if you ever received a resolution on this? I am trying to figure out whether a 2018 (big) mortgage interest tax deduction paid upon reinstatement of a mortgage in default over prior 3-4 years can be associated back to those years. Also cross-posted on this (attached upload).
 

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