Congratulations on Buying Your Home with Cash! PT. 2

Is There a Deadline to Qualify for the Tax Benefit?

Yes! You must put a mortgage on your primary or vacation property within 90 days of the purchase closing date in order to qualify for the special “acquisition indebtedness” status.

What if I Wait Until After 90 Days?

You will lose the special tax benefits associated with the “acquisition indebtedness” status. Any mortgage you put on your primary or vacation property in the future that is not used specifically for home improvements will be classified as “home equity indebtedness”.

Okay, So I Lose the Tax Benefit… But Why Would I Want a Mortgage On My Property in the First Place?

With interest rates being so low right now, you could use the funds for any number of reasons including:

  • Investment – can you and your financial advisor find a safe investment that yields more than the 2% or 3% after-tax cost of your mortgage?
  • College fund for your children or grandchildren – would you rather leave them a bunch of equity in a home or a legacy that makes an impact in their life?
  • Elder care needs – do you have enough set aside to care for yourself or your loved ones as you age?
  • Retirement needs – do you have enough set aside to provide income during retirement?
  • Vacation home or other property – how are you taking advantage of the clearance sale going on in the housing market right now?

Remember, if you decide to wait and use a mortgage to do any of these things in the future, you won’t be able to deduct the mortgage interest. It may be worthwhile to put a mortgage on the property now, and then put the funds aside until you know what you want to do with them. After you make a decision, you could then pay off or pay down the mortgage with any leftover funds that you don’t use.

Does the “90 Day Rule” Also Apply to Investment Properties?

No. Investment properties have different rules, deadlines, and guidelines that must be followed.

What’s the Next Step?

I would recommend that we have a brief 20-30 minute conversation to evaluate your options and whether a mortgage might make sense for you right now. You could then take my recommendations to your CPA and get his or her opinion before making a decision. If you don’t have a CPA, I’d be happy to make an introduction for you.


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