Florida  |  Tax Law

Legal Question

Asked on: 10/07/13, 7:46 am

Hello,

1-I'm trying to see whether our 2nd mortgage home equity line of credit amount of $135,000 that was:

1- Forgiven by the bank,

2- Secured by our principal residence

3-Utilized solely to make substantial home improvements, ( a complete remodel. )

falls under the IRC 163 (H)(3)(B) exclusion from taxation.

The strict definition of that section from the IRS website says: Aqusition indebteness includes debt incurred in acquiring, building or "substantially" improving a principal residence secured by the residence.

The exclusion from taxation seems to be for 1st mortgages and refinances only but we still seem to fall under the "strict" guidelines of that definition given how all the money was spent on the remodel.

2-Also, does the acquisition of this recourse equity line several years after the home was purchased, still qualify under IRC 163? Nothing in the IRS's definition of acquisition indebteness mentions a timeline as far as "when" the substantial improvements are made?

We have all receipts.

Thank you in advance for your input!!!

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