All Forum Posts by: Michael Gibek

Looking for recommendations for lenders that have lowest rates on refi or heloc for condo rentals. Looking to come down from adjustable 5% on 115k loan in CT. Open to all products, no points. Excellent credit, +5 years in service cash flow positive, gross personal income +300k, no other loans except jumbo on primary residence.

Looking for recommendations for lenders that have lowest rates on refi or heloc for condo rentals. Looking to come down from adjustable 5% on 115k loan in CT. Open to all products, no points. Excellent credit, +5 years in service cash flow positive, gross personal income +300k, no other loans except jumbo on primary residence.

I’m trying to see if I can optimize our financial situation with respect to our rental property that has been cash flow positive since put into service back in 2014. Any recommendations or suggestions are welcome.

We financed the purchase with a 5-year ARM mortgage that is now in its 7th year with an annual interest rate of 5% that adjusts every August 1st based on the 1 year libor plus 2.25% margin. If it was today, the interest rate would adjust up to 5.25%. I'm mulling over several options, including refinancing or paying of the mortgage, but neither option seems to move to needle much. My opportunity cost analysis (available at https://imgur.com/a/6kOLoFl), compares: (a) paying off the $115k balance on the mortgage versus (b) keeping the current mortgage (or refi at 5%) and throwing the $115k into a T-bill ladder or 30-year T-bond. Results show that paying off the mortgage yields about 1.65% or 1.21% more compared to the risk-free rate of return. That's about $1895 or $1397 in annual difference, which doesn't seem very significant.

Are there any alternative financing options out there that would significantly reduce the interest rate cost? Perhaps, in exchange for pledging the balance of the mortgage in liquid assets such as a T-bill ladder? Or cross-collateralize our principal residence (which has over $115k in equity)?

Not sure if I stated my case correctly. Allow me to clarify.

On November 1, 2010, the IRS issued Revenue Ruling 2010-25, available at .

The facts presented by Rev. Rule 2010-25 were as follows:

• "In 2009, an unmarried individual (Taxpayer) purchased a principal residence for its fair market value of $1,500,000. Taxpayer paid $300,000 and financed the remainder by borrowing $1,200,000 through a loan that is secured by the residence. In 2009, Taxpayer paid interest that accrued on the indebtedness during that year. Taxpayer has no other debt secured by the residence."

This is essentially my situation except for two facts, which I don’t think are relevant: (1) I am married; and, (2) my debt was incurred in 2016 instead of 2009.

The question posed based on these facts was: how much interest can the taxpayer deduct -- $1,000,000 or $1,100,000?

The answer was:

• "Under § 163(h)(3)(A), the interest on both acquisition indebtedness and home equity indebtedness is qualified residence interest. Therefore, for 2009 Taxpayer may deduct interest paid on indebtedness of $1,100,000 as qualified residence interest."

My question now is: can that same taxpayer from the above facts deduct $1,100,000 for tax year 2018 (under the new tax law)?

And if so, why or why not?

Before the new tax law, the interest on up to $1 million on a mortgage secured by a primary residence could be deducted on scheduled A. Likewise, the interest on HELOC up to $100k could be deducted in the same way. It was my understanding that under the new tax law, the cap on all primary residence mortgages subsequent to December 15, 2017 is now $750k and the HELOC deduction is completely eliminated. Under the new law, a transition rule grandfathers in the $1million mortgage deductions on any mortgages that closed prior to December 15, 2017 but there is no similar rule for HELOCs. As such, I was under the impression that the $100k HELOC tax deduction was completely scraped pre and post Dec 15, 2017.

What many didn't know was that pre- the new tax law, the mortgage interest deduction limit was actually $1.1 million under Rev. Rul. 2010-25 (). That is, all the mortgage interest on a primary residence secured by one mortgage up to $1.1 million (no HELOC) was deductible on schedule A. My reading of the advisory opinion is that it appears to turn on section 163 of the IRC which deals with the $100k HELOC deduction to justify going over the $1million cap up to $1.1millino.

Because the HELOC deduction was scraped by the new tax law, I thought the limit on pre-new tax law jumbo mortgages was effectively reduced from $1.1M to $1M. However, some new information from the IRS suggests that may not be the case. IRS newswire from February 21, 2018 (IR-2018-32) notes: "[t]he Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan." ().

This seems to suggest that a piggy back HELOC is still tax deductible; and, by extension, the 100k in excess to the $1M on grandfathered mortgages is still tax deductible.

Any tax professional out there care to weigh in? In short, can I still deduct the interest up to $1.1M on my $1.3M primary residence mortgage? Or am I now capped to the grandfathered $1M?