IRS' 90 Day Rule for Mortgage Interest Deductibility

I have sold my first cash out refi for a client who bought with cash, and had a few questions: The 90th day would be Nov 14th, which gets tricky with Veteran’s Day, RESPA, TRID, and the 3 day right of recission.

  • Section 163 says the mortgage interest will be deductible (up to $750K for married borrowers) if it was used to Acquire, Construct, or Improve the property secured by the loan

  • And it also seems like if the mortgage is obtained less than 90 days after the property was purchased, the mortgage interest would be considered Acquisition Indebtedness.

  • If the mortgage was obtained more than 90 days after the property was purchased, it would be considered Home Equity Indebtedness.

 

 Questions:

  1. Is there any real difference to the Logans if it’s Acquisition Indebtedness or Home Equity Indebtedness? (Ie- if it closes <90 days or just after)?

  2. If there is a significant difference between the two, how does the IRS determine that the mortgage was obtained? Would they go off of the date the loan closing disclosures were signed, the date it funds after the 3 day recission period, or the date the new mortgage is filed publicly? Is this something that the IRS requires to be submitted upfront, or is this a scenario where if there was an audit, the taxpayer would have to prove it?

  3. Is there anything else you know of that I may be missing here that would be important to consider?


Thank you all!