Understanding Real Estate Tax Advantages Part 2
The rule is tricky. You may purchase a home with a mortgage of $300,000. Under the rule, all of the interest on this mortgage is presumably deductible. After you buy the property, you decide to add to the house and secure a mortgage for $250,000 more. If the money is used to build or improve the property, all the interest on the second mortgage is likewise deductible.
However, if you took out a second on the same property for $250,000 and used the money to start a business of your own, only the interest on the first $100,000 of the debt would be deductible.
Also, if you take out a mortgage against your home and then buy bonds that are tax free or otherwise receive tax-free income, the interest on the mortgage may not be deductible. On the other hand, there may be a special exception available to you if you use the money for education. Check with your accountant.
As I said, mortgage interest in general is deductible, but . . . Be sure you check with any accountant or other tax professional to see what the circumstances are in your case.