Mechanics
The mechanics of the qualified residence interest deduction are given in ยง163(h)(3) of the IRC. In order to use the deduction, the taxpayer must have paid or accrued interest during the taxable year from one of two of the following sources. The interest must be attributable to either 1) acquisition indebtedness, or 2) home equity indebtedness, with respect to any qualified residence of the taxpayer. Acquisition indebtedness is defined as an indebtedness which is incurred in acquiring, constructing, or substantially improving any qualified residence, and is secured by such residence. Home equity indebtedness is defined as any indebtedness secured by a qualified residence to the extent that the aggregate amount does not exceed 1) the fair market value of that qualified residence, minus 2) the amount of acquisition indebtedness with respect to that residence.
Read more about this topic: Qualified Residence Interest
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