Pair Can Deduct Mortgage Interest On Two Non-Rental Homes

My wife and I own our principle home in Seymour,
IN. I work in Seymour. My wife works for a company in Indianapolis. Last April
we purchased a condominium in Indianapolis. I understand only part of the
closing costs are allowed as a tax deduction. My question is about the interest
expense. Can we deduct the interest expense for both homes?

R.R., Seymour, IN

When you own two homes, whether it is for work reasons or for pleasure (such as a vacation home), the mortgage interest on the second home is deductible, just as the interest on the first home is deductible. The deduction is taken as an itemized deduction on Schedule A. Homeowners who can't itemize lose the benefit of this deduction.

The interest deduction stops at two homes. If you add to your collection by purchasing a third home, you will not receive a deduction for the mortgage interest.

Note that we're talking about personal homes here, not dwellings owned and rented out to tenants. Different rules apply when deducting interest on rental property.

In addition to deducting mortgage interest on your second home, you can take a deduction for real estate taxes on both homes. In fact, no matter how many homes you own, you will always be entitled to deduct the real estate taxes on all the homes.

We send our son to a private kindergarten, and
wonder if any of the tuition is deductible.

M.T., Indianapolis

Deductible? No. Allowable as a credit? Maybe. If your child attends private kindergarten so that you and your spouse can work, the costs of the kindergarten will qualify as costs relating to child care and will thus qualify toward the computation of the Child and Dependent Care Credit. This credit was designed to ease the burden of costs of care for young children that are necessarily incurred when both spouses work. (The credit also covers costs of care for disabled adult dependents.)

In order for the child' s kindergarten costs to qualify for the credit certain tests must be met including:

  • The child must be your dependent and under 13 years of
  • You and your spouse must pay more than half the cost of
    keeping up the home in which the child lives
  • Both you and your spouse must have earned income during
    the year
  • The expenses must be incurred because they allow you and
    your spouse to go to work or look for work

    The expenses must include the cost of providing care for the child. This is the area of the law that is the most hazy. Generally in the case of a private kindergarten or nursery school, the cost of care is inseparable from the cost of the schooling and thus the entire cost can be designated as the cost of providing care for the child. If, however, you have a situation where specific times of the day are set aside as being for education and learning and other times are set aside as something more akin to day care, and you pay separate amounts for each type of service, the IRS expects you to apply only the day care portion of the cost toward the tax credit. This is a pretty rare situation, and the general rules tend to favor applying the entire kindergarten cost toward the tax credit.

    If you continue to pay for private schooling when your son begins first grade, you lose the opportunity to claim the cost of the school as a child care expense. However, any costs paid to the school that are specifically for child care, such as after-school or before-school care, will qualify for the credit.

    The tax credit isn't equal to the full amount that you spent on schooling. There are some computational hoops through which you must jump in order to figure out just how much of a credit you get to take. Use Form 2441 to figure out your credit and attach that form to your tax return.

    Also, be sure to call the school and ask for their federal identification number, then place that number in the designated space on your Form 2441. This nine-digit number is required in order for you to claim the credit.

    copyright © 1998 - Gail

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