Acquisition Debt: Must It Be Concurrent with The Purchase?

Posted by Lee Reams Sr., BSME, EA on

Recently an interesting question arose whether a loan must be obtained simultaneously with the close of an escrow for the purchase of property to be treated as acquisition debt? 

We did some research and the only thing we found on the issue was included in Notice 88-74 related to the home mortgage interest deduction. Here is what the Notice had to say on the issue:

Acquisition - In the case of the acquisition of a residence, debt may be treated as incurred to acquire the residence to the extent of expenditures to acquire the residence made within 90 days before or after the date that the debt is incurred.

Construction or Substantial Improvement - In the case of the construction or substantial improvement of a residence, debt incurred prior to the time the residence or improvement is complete may be treated as being incurred to construct or improve the residence to the extent of any expenditures to construct or improve the residence which are made no more than 24 months prior to the date that the debt is incurred. Debt incurred after the residence or improvement is complete, but no later than the date 90 days after such date, may be treated as being incurred to construct or improve the residence to the extent of any expenditures to construct or improve the residence which are made within the period beginning 24 months prior to the date the residence or improvement is complete and ending on the date the debt is incurred.

The Notice goes on to say regulations will be issued, but that has never happened.  Notices can be relied on and cited as precedent by taxpayers. IRS is bound to what it says in an announcement or notice to the extent it would be with a Revenue Ruling or Revenue Procedure.

Thus, the answer to the question is yes, if the loan was acquired within the time periods described in Notice 88-74. 

 

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