Homeowners can deduct interest on up to $1.1 million in mortgage debt, $100,000 more than the previous limit of $1 million, according to a recent change by the Internal Revenue Service.
The IRS ruling, announced last week, brushed aside a Tax Court ruling that would have limited those deductions.
Taxpayers are allowed to deduct interest on up to $1 million in debt to purchase or improve a residence. In addition, taxpayers may deduct interest on up to $100,000 of home equity indebtedness, provided that this debt is fully secured by the residence.
In a 1997 case, the Tax Court limited a deduction for taxpayer Peter S. Pau, who tried to deduct interest on $1.1 million of a $1.3 million loan. The court said the taxpayer could only deduct interest on debt up to $1 million.
An additional deduction up to $100,000 was allowed only if the taxpayer showed that the amounts borrowed were not used to acquire or improve the home, the court said.
In Thursday's rule, the IRS disagreed. "The Internal Revenue Service will not follow the decisions" of the Tax Court, IRS said.
The extra $100,000 write-off could be worth up to $1,750 in tax savings for a person in the 35 percent income tax bracket, who is paying 5 percent interest on a loan.
Banker & Tradesman
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