8035 / What is the “ninety-day rule” that may apply in determining whether mortgage interest may be deducted?

In order to be incurred to acquire, construct, or substantially improve a residence, a debt must (a) be traceable under the tracing rules of Temporary Treasury Regulation Section 1.163-8T to the purchase of a qualified residence, or (b) qualify under one of two 90-day rules.¹

The 90-day rule with respect to acquiring a residence provides that expenditures to acquire the residence within 90 days before or after the date the debt is incurred can be treated as incurred to acquire the residence.

The 90-day rule with respect to constructing or substantially improving a residence is somewhat more complex. A debt incurred before the residence or improvement is complete may be treated as incurred to construct or substantially improve a residence to the extent of expenditures (to construct or improve the residence) made no more than 24 months prior to the date the debt is incurred. If the debt is incurred no later than 90 days after the residence is complete, it may be treated as incurred to construct or substantially improve a residence to the extent of expenditures (to construct or improve the residence) made during the following period: beginning 24 months before the residence or improvement is complete, and ending on the date the debt is incurred.

Guidelines state that a determination of whether a residence or an improvement is complete depends upon all the facts and circumstances.²