Originally published on Passive Activities and Other Oxymorons on May 2nd, 2011.
____________________________________________________________________________
Revenue Ruling 2010-25
I’ve been kicking myself for posting a backlog of material that I think is getting stale. It’s from March and maybe even February. Today I received my copy of the latest issue of the Journal of Accountancy. As usual it includes something from the most current issue of The Tax Adviser, which I’ll probably get tomorrow. Here is what the ruling is about. There is a limitation on home mortgage indebtedness based on the outstanding balance of the mortgage. The limit is a mortgage balance of $1,000,000, In order to qualify the loans proceeds must have been attributable to acquiring a residence and secured by such residence.
Then there is home equity indebtedness. Interest on that is also deductible with the mortgage balance limit being $100,000. Home equity indebtedness just has to be secured by a residence. You can have spent the money on anything. So what happens if somebody takes out a mortgage of say $1,500,000 to purchase a residence. To make the math easy lets say its at 5% and was outstanding all year. I and a lot of other practitioners thought you could deduct $55,000 of the $75,000 you had to pay. $50,000 is acquisition indebtedness. $5,000 is home equity indebtedness. As it turns out there were two tax court decisions that said otherwise (Pau TCM 1997-43 and Catalano TCM 1997-43). According to those decisions you can spend home equity indebtedness proceeds on anything except the acquisition of the residence securing it.
Revenue Ruling 2010-25 might seem a little shocking to those who think the IRS is voracious behemoth. The ruling says the (I hate to say this) common-sense view, which is more favorable to the taxpayer, is correct. So it’s nice to have some good news there in the Journal of Accountancy and the Tax Adviser. I think, however, the information would have been more useful in say February or maybe even March since you probably don’t want to have to amend a return for a $5,000 deduction. As a matter of fact, a lot of taxpayers with the business affairs that go with $1,000,000 plus houses might be afraid that an amended return would trigger an audit. (It’s a common belief. After 30 years I still don’t know whether there is anything to it.)
Well here is the observation that is the point of this post. You could have read about the ruling in this blog on November 10. Not to give myself too much credit. These guys, whom I haven’t been following, had it on October 26. It was here on October 14. Rubin on Tax, who always seems to beat me to the punch when we blog on the same thing also had it in October. James Edward Maule of Mauled Again also had it a little ahead of me.
I’m not striving to give up to the minute information. I try to put a little more into my posts than just the bare material, so if something is covered by a lot of bloggers I’m probably not going to be at the head of the pack. There is big difference between one month and six, though. More importantly there is a big difference between two months before the beginning of tax season and two weeks after the end. The article in the Journal really doesn’t add anything that could possibly justify a six month wait for the information.