90 Day Rule for Cash Buyers

by | Nov 22, 2021 | Featured Post

  1. What is the “Acquisition Indebtedness” Rule?
    The only time you can deduct mortgage interest is if the mortgage was used to buy, build, or improve a primary or vacation home. In that case, the mortgage qualifies for “acquisition indebtedness” status. If you itemize your tax deductions, you can deduct the interest on up to $750,000 of acquisition indebtedness.
  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.
  3. What happens if you 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 will not qualify for a tax deduction unless you specifically use the funds for home improvements on that house.
  4. Why would I want to place 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 find a safe investment that yields more than your mortgage rate?
    • 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?
    • Retirement needs: do you have enough set aside to provide income during retirement?
    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.
  5. Does the 90-day rule apply to investment properties?
    No. Investment properties have different rules, deadlines, and guidelines that must be followed.
  6. 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. Contact me using the info below so we can get started!

    Are you ready for clear direction? Get in touch today!

    Tim Erickson
    P: (652) 451-2273
    E: tim.erickson@goluminate.com
    W: www.TimEricksonMortgage.com

    Mark Henderson
    P: (651) 398-3477
    E: mark.henderson@goluminate.com
    W: www.MarkHendersonMortgage.com