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Member
Group: Forum Members
Last Login: 11/27/2007 8:36:30 AM
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| Hi - I'm a new member. I read in CalCPA about this group and encouraging participation. I thank you for your willingness to give your time to help other practitioners. I have searched through the archives and see some discussion regarding: 1. A bypass trust is funded with all or portion of personal residence. Reasons may vary, it may be the only asset, it may be the best choice for other reasons. 2. Subsequently, the survivor purchase all or a portion of the residence back from the bypass trust. Reasons are to retain qualified mortgage interest deduction on mortgage payments, and perhaps for section 121 issues since 121 does not apply to trusts. Assuming this occurs, my questions are: If the survivor already has maxed out on qualified residence interest, is the deduction for interest paid to the bypass lost? If this is case, is there any structure that would allow the survivor to obtain an investment interest deduction? Thank you,
Barbara Whatley
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Power Member
Group: Forum Members
Last Login: 3/12/2011 12:58:57 PM
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| The interest is qualified residence interest if the loan is secured by the residence so there is a possibility that you could have an unsecured loan that was investment interest. I had a client that bought another asset out of his QTIP trust in order to gift it to his children. It was secured by $100k against his unencumbered residence and the balance was secured by common stock that he had pledged for the purpose. Another client was thinking of doing something similar. We checked with the broker and found that they could encumber stocks in a brokerage account. I don't think it would be easy but that's a choice. I've never had the problem with the interest limitation. The purchase of the residence will be subject to any existing loan - for example, $1 million residence with 600k loan, survivor purchases it for 400k with interest only loan; that gets you to your $1 million limit. Interest paid on loans in excess of the limits are lost deductions. The law provides that principal payments reduce the excess amount first, so you should get rid of the excess interest sooner rather than later.
Mary Kay Foss
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Member
Group: Forum Members
Last Login: 11/27/2007 8:36:30 AM
Posts: 2,
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| Thank you for your reply Mary Kay. I am new to this forum and didn't see the reply earlier. Barbara Whatley
Barbara Whatley
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