Interest on Home Acquisition Debt is fully
deductible up to $1 Million!



Home Acquisition Debt Definition
Home acquisition debt is a mortgage you took out after October
13, 1987, to buy, build, or substantially improve a qualified home
(your main or second home).  The debt must also be secured by
that home.

If the amount of your mortgage is more than the cost of the home plus
the cost of any substantial improvements, only the debt that is not
more than the cost of the home plus improvements qualifies as home
acquisition debt.  The additional debt may qualify as home equity
debt.

Home Acquisition Debt Limit
If the amount of your mortgage is more than the cost of the home
plus the cost of any substantial improvements, only the debt that is
not more than the cost of the home plus improvements qualifies as
home acquisition debt.  The additional debt may qualify as home
equity debt.  The total amount you can treat as home acquisition
debt at any time on your main home and second home cannot be
more than $ 1 million ($500,000 if married filing separately). 
This limit is reduced by the amount of your grandfathered debt. 

To qualify as a "substantial improvement" the improvement must:
     - Add to the value of your home.
      - Prolong your home's useful life.
      - Adapt your home to new uses. 

Repairs that maintain your home in good condition, such as
repainting your home, are not substantial improvements.  However,
if you paint your home as part of a renovation that substantially
improves your qualified home, you can include the painting costs
in the cost of the improvements. 

Refinanced Home Acquisition Debt
 Any secured debt that you use to refinance home acquisition debt
is treated as home acquisition debt.  The new debt will qualify as
home acquisition debt only up to the amount of the balance of the
old mortgage principal just prior to the refinancing.  Any additional
debt is not treated as home acquisition debt, but may qualify as
home equity debt.  

Mortgage That Qualifies Later
A mortgage that does not qualify as home acquisition debt because it
does not meet all the requirements may qualify at a later time. For
example, a debt that you use to buy your home may not qualify as home
acquisition debt because it is not secured by the home. However, if the
debt is later secured by the home, it may qualify as home acquisition debt
after that time. Similarly, a debt that you use to buy property may not qualify
because the property is not a qualified home. However, if the property
later becomes a qualified home, the debt may qualify after that time

Mortgage Treated as Used to Buy, Build, or Improve Home
A mortgage secured by a qualified home may be treated as home
acquisition debt, even if you do not actually use the proceeds to buy,
build, or substantially improve the home.  This applies to the following
situations:
  1. You buy your home within 90 days before or after the date you take
    out the mortgage.  The home acquisition debt is limited to the home's
    cost, plus the cost of any substantial improvements within the limits
    described in points (2) and (3) below.
  2. You build or improve your home and take out the mortgage before
    the work is completed.  The home acquisition debt is limited to the
    amount of the expenses incurred within 24 months before the date of
    the mortgage.
  3. You build or improve your home and take out the mortgage within 90
    days after the work is completed.  The home acquisition debt is limited
    to the amount of the expenses incurred within the period beginning 24
    months before the work is completed and ending on the date of the
    mortgage.





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