Is the interest on 125 percent financing deductible?
August 31st, 2008 By Peter G. Miller
This is a somewhat complex question.
Interest on loans secured by real estate is generally deductible if the acquisition mortgage value is not more than $1 million. Interest is also deductible for home equity loans (second loans) up to $100,000.
With 125 percent financing you have a loan that is worth more than the house — big trouble if you need to sell. In terms of taxes, the amount above the value of the property may be regarded as “excess” mortgage. The “excess” amount may be taxable when the home is sold.
Also, interest on that portion of the financing which tops the property’s fair market value may not be a write-off.
Please speak with a tax pro for details.
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