Tax Facts

8038 / How is mortgage interest debt that is incurred to acquire the interest of a taxpayer’s spouse or former spouse pursuant to a divorce treated?

Editor’s Note: The 2017 Tax Act changed the rules governing the treatment of mortgage interest, home equity indebtedness interest and interest on debts to secure refinancing. See Q 8034 for details.

Regulations will provide that a debt incurred to acquire the interest of a spouse or former spouse pursuant to a divorce or legal separation will be treated as debt incurred to acquire a residence (for purposes of the definition of acquisition indebtedness in IRC Section 163) without regard to the treatment the transaction would otherwise receive under IRC Section 1041 (regarding transfers incident to divorce).1

1.  Notice 88-74, 1988-2 CB 385. See also Let. Rul. 8928010.

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