Deducting accrued home mortgage interest

Discussion in 'Tax' started by Brian, Mar 25, 2006.

  1. Brian

    Brian Guest

    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,

    Last edited by a moderator: Jan 23, 2018
    Brian, Mar 25, 2006
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  2. Brian

    hlunsford Guest

    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?

    Harlan Lunsford, EA n LA
    Last edited by a moderator: Jan 23, 2018
    hlunsford, Mar 26, 2006
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  3. Brian

    LTSLLC Guest

    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".

    Last edited by a moderator: Jan 23, 2018
    LTSLLC, Mar 26, 2006
  4. Brian

    Mr. Travel Guest

    I don't see where Section 163 states the accrued interest can only be
    deducted if you are an accrued based taxpayer?
    Mr. Travel, Jan 24, 2008
  5. 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."

    Stuart Bronstein, Jan 24, 2008
  6. Brian

    D. Stussy Guest

    ....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).
    D. Stussy, Jan 25, 2008
  7. 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.

    Stuart Bronstein, Jan 25, 2008
  8. Brian

    D. Stussy Guest

    Sorry for the brain Freeze: Section 170, and it's regulations 1.170A.
    D. Stussy, Jan 25, 2008
  9. Brian


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    Fiscquestioner007, Jan 2, 2019
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