Do I NEED a mortgage ?
Question: One thing to watch for if you up the mortgage – make sure the >>amount you borrow clearly goes to build / purchase / improve the house >>it’s secured against. Otherwise the interest may not be deductible. >>Starting with a house that’s free and clear and taking out a big >>equity line, and then using that borrowed money to buy investments >>*may* not be deductible.
>Generally, borrowing money against your house is deductible as long as >the home equity loan does not exceed the acquisition indebtedness >and/or is under $100,000 regardless of what the money is used for. If >you exceed those amounts, you do need to be concerned about the >specific rules and the use of the loan proceeds. However, interest on >any loan used for investment is generally deductible as a misc. >itemized deduction subject to 2% of AGI floor. The easiest way for me >to remember, in general, what is deductible is this: if you incurred >the expense to generate taxable income, it’s probably deductible.
Answer: Good points …. that’s why I used the wording *may* not be deductible, because there are so many qualifiers, and I was trying to avoid getting into lots of specific what-if’s and bloating the post even further. Details end up putting it into the realm of “get REAL, professional advice, not mine”.
If the original poster ends up having to calculate Alternative Minimum Tax, what the money from the house loan was used for determines if it’s deductible for AMT purposes …. I think, but am not certain, the wording is something like “used to acquire, construct or substantially improve” the residence. Under that restriction a home equity loan used to buy investments would not be deductible when calculating AMT, regardless of $ amount or whether those investments produced gobs of taxable income in excess of the amount being deducted … etc … Can’t have those rich people being allowed to deduct consolidation-billpaying/kid-in-college/etc home equity loan interest, after all. 
Seems like the way Congress writes our tax laws, everything is “in general”. It’s the specifics that nail ya.
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