CCA Departs From Tax Court on Mortgage Debt Exceeding $1 Million

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 The IRS Office of Chief Counsel says in CCA 200940030 that indebtedness in excess of $1 million incurred to acquire, construct, or substantially improve a qualified residence can constitute home equity indebtedness qualifying for the interest deduction available under Section 163(h)(3)(C).

As such, it says a taxpayer who borrows more than $1 million to buy a principal residence may deduct interest on up to $1.1 million of the loan—$1 million as acquisition indebtedness and $100,000 as home equity indebtedness. The office notes the position it is taking in the CCA is inconsistent with Tax Court rulings in Pau v. Commissioner and Catalano v. Commissioner.