Bennefit of having debt on home?

Question

I own a home in NC and have no debt against my primary residence. I would like to purchase a second home in SC. The cost of the home will run about $500,000. I have cash for the purchase but I also understand that from an after-tax standpoint, I might benefit from having some debt against the house if I am able to deduct the interest expense. I want to know the maximum amount of debt I can take out and have the interest be deductible. I am also thinking about borrowing against my margin account to purcahse a more expensive house.
Please advise.

Please list where in the Internal Revenue Code Section your information comes from and also cite an court cases you reference to or use.

Answer 1

The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately). This limit is reduced (but not below zero) by the amount of your grandfathered debt (discussed later). Debt over this limit may qualify as home equity debt (also discussed later

Publication 936
http://www.irs.gov/publications/p936/index.html

http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000163----000-.html

Answer 2

You can only deduct the interest on your main home and one other residence of your choosing. This is subject to the limits Rob discusses. Check the publication.

Answer 3

You never want to pay interest just to get a tax deduction.

Answer 4

Buddy, if you have that kind of money, stay out of debt, you can't go wrong that way.