What is the Definition of a Secured Debt?

Posted by Lee Reams Sr. on

With the home mortgage interest changes brought about by the Tax Cuts and Jobs Act (TCJA), it seems the definition of “secured” for purposes of deducting home mortgage interest has been a topic of considerable discussion. 

In Defrancis v. Comm'r, 2013 Tax Ct. Summary LEXIS 89, Chief Judge Panuthos, in pertinent part, wrote this:

"Secured” debt means a debt that is on the security of any instrument (such as a mortgage, deed of trust, or land contract):

(i) That makes the interest of the debtor in the qualified residence specific security of the payment of the debt,

(ii) Under which, in the event of default, the residence could be subjected to the satisfaction of the debt with the same priority as a mortgage or deed of trust in the jurisdiction in which the property is situated, and

(iii) That is recorded, where permitted, or is otherwise perfected in accordance with applicable State law (Sec. 1.163-10T(o)(1)).

The regulation cited goes on to say that “a debt will not be considered to be secured by a qualified residence if it is secured solely by virtue of a lien upon the general assets of the taxpayer or by a security interest, such as a mechanic's lien or judgment lien, that attaches to the property without the consent of the debtor.”