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Old 03-31-2024, 02:40 PM   #21
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Originally Posted by Lorenzo View Post
That is interesting about the "TCJA's sunset in 2025." Yes, it looks to me like under the present rule theHELOC interest is not be deductible if used for anything other than buying or improving the home that is the HELOC's collateral, but if the TCJA expires as scheduled in 2025 then I think your proposal would work.
Based on this link, I think my idea would work if I took a HELOC on the second home in 2026. The HELOC interest would be tax deductible. Maybe someone can confirm as well.

https://www.rocketmortgage.com/learn...tax-deductible
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Old 03-31-2024, 03:06 PM   #22
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Thanks for the insight on this. I will check into that.

Also, what about this scenario. You use the HELOC on your primary residence plus a combination of cash to purchase the second home outright in year 2024. Let's assume the value of the second home is $300k and the HELOC amount used were $200k. Since the HELOC was used for the purchase of a second home, the interest is not tax deductible based on my research.


After purchasing the second home outright, now you have $300k worth of equity in the second home. Typically, they will let you borrow up to 80% LTV. That would be $240k. It my outstanding that after the TCJA’s sunset in 2025, if you get a HELOC, the interest on the HELOC is tax deductible no matter what you do with the funds.

So, in 2026, you would get a HELOC on the second home to pay off the HELOC on your primary residence. Now the interest should be tax deductible.

Is my logic correct?
Yes, your logic is correct if the TCJA sunsets. Remember though, Congress doesn't have to just let the entire TCJA sunset; they can write new legislation that reintroduces or extends any part of it. You might look around and see if there's been any discussion about this particular clause. It's not something I'm following, so I have no idea.

You also have to be able to get a big enough HELOC on the vacation home in 2026. There are a number of reasons why your equity value might go down instead of up, so you might not have enough equity to wipe out the first HELOC. If you're buying into a market with a history of stable or increasing prices you're probably o.k. though.
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Old 03-31-2024, 07:51 PM   #23
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Most economical way to "own" a second home is just to rent on VRBO, etc.... There are always deals if you look around. You can always, in my experience, find a place for significantly less than the cost of ownership. On the other hand there can be significant non-financial benefits of owning a second home. I contemplate this seemingly daily and so far have been able to talk myself out of it. If we do eventually make the plunge would probably get a traditional mortgage on the vacation home with a significant down payment. For now though we'll keep renting!
Depends on what you are looking for. If you don't like being tied down to one location then your way is the best. We were fortunate enough to buy the place we will eventually retire at. We also purchased it 4 1/2 years ago for 118k now it is worth over 300k so a very good investment. Timing was key though, got lucky.
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Old 03-31-2024, 10:44 PM   #24
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Thanks for the insight on this. I will check into that.

Also, what about this scenario. You use the HELOC on your primary residence plus a combination of cash to purchase the second home outright in year 2024. Let's assume the value of the second home is $300k and the HELOC amount used were $200k. Since the HELOC was used for the purchase of a second home, the interest is not tax deductible based on my research.


After purchasing the second home outright, now you have $300k worth of equity in the second home. Typically, they will let you borrow up to 80% LTV. That would be $240k. It my outstanding that after the TCJA’s sunset in 2025, if you get a HELOC, the interest on the HELOC is tax deductible no matter what you do with the funds.

So, in 2026, you would get a HELOC on the second home to pay off the HELOC on your primary residence. Now the interest should be tax deductible.

Is my logic correct?
I don't get why wait until 2025. Seems risky to invest/spend based on politicians.

After you buy the 2nd home, you can mortgage it immediately and pay off the 1st HELOC.

Of course you could just buy the 2nd home with cash and get a mortgage.

Could you even deduct the mortgage/HELOC interest cost ?
Assuming a 6% interest rate on $200K , would be ~$12,000 per year. You would need a bunch more in itemized expenses to match the standard deduction of $29,000

Maybe none of it is really deductible. ?
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Old 04-01-2024, 05:28 AM   #25
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I don't get why wait until 2025. Seems risky to invest/spend based on politicians.

After you buy the 2nd home, you can mortgage it immediately and pay off the 1st HELOC.

Of course you could just buy the 2nd home with cash and get a mortgage.

Could you even deduct the mortgage/HELOC interest cost ?
Assuming a 6% interest rate on $200K , would be ~$12,000 per year. You would need a bunch more in itemized expenses to match the standard deduction of $29,000

Maybe none of it is really deductible. ?
I wasn't sure if you could get a mortgage on a second home that you own outright. I'ts good to know you can.
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Old 04-01-2024, 07:00 AM   #26
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Just curious the location?
North Carolina
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Old 04-01-2024, 07:04 AM   #27
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North Carolina
I'm looking at one nearby as well.
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Old 04-01-2024, 09:02 AM   #28
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...
Could you even deduct the mortgage/HELOC interest cost ?
Assuming a 6% interest rate on $200K , would be ~$12,000 per year. You would need a bunch more in itemized expenses to match the standard deduction of $29,000

Maybe none of it is really deductible. ?
If he's depending on the TCJA provisions being allowed to sunset so he can deduct HELOC interest, that would also apply to the rest of the TCJA too. Standard deductions should go back to around $15K for a married couple or about half that for a single. The $10K SALT limit would also disappear, and he'll have property tax on two homes plus state income tax in NC. That should be enough to itemize, and any charitable contributions or misc deductions over the 2% floor or medical over 7.5% would also help.
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Old 04-01-2024, 09:36 AM   #29
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If he's depending on the TCJA provisions being allowed to sunset so he can deduct HELOC interest, that would also apply to the rest of the TCJA too. Standard deductions should go back to around $15K for a married couple or about half that for a single. The $10K SALT limit would also disappear, and he'll have property tax on two homes plus state income tax in NC. That should be enough to itemize, and any charitable contributions or misc deductions over the 2% floor or medical over 7.5% would also help.
Yeah, but what are the chances of a simple sunset? Not high IMO; they will maybe allow some pieces to sunset but mess with and extend others. Predicting is nearly futile.
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Old 04-02-2024, 01:05 PM   #30
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I build a second home lake front in a ski resort town. My boys were 5 and 7 now 23 and 25. The place has more nearly tripled in value. Time is on your side with real estate. We managed to do it when we were young and rented it out before Airbnb and Homeaway existed. It was a simple way to carry the cost.
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Old 04-02-2024, 01:20 PM   #31
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Point being , The carrying costs in the long term will exceed the purchase price. I would be less worried about how to pay for it and more worried about how to carry it for the long haul.
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Old 04-05-2024, 04:36 PM   #32
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I think it's probably like a timeshare, in that after a while you will get sick and tired of going to the same place year after year.

Save the money and headache and rent a place.
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Old 04-05-2024, 06:00 PM   #33
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Banking on future tax law may not be a winner.
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Old 04-05-2024, 06:58 PM   #34
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Some interesting discussions re how to avoid paying federal taxes ... a bit too close in some cases, for me.
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