A friend of mine thought he would take advantage of the rotten winter weather — and the perception that real estate is about the same — and make a low-ball offer on a piece of recreational property that one day could become his second home.

His theory was that owners of summer lake cottages felt removed from their sunny getaways at this time of year and those older owners, reluctant to tackle another stretch of off-season maintenance and security, would especially be more likely to consider a cash proposal during the dark days of winter.

"Besides, I could borrow against my primary residence to pay for most of the place and then take a larger deduction on my income tax."

While the off-season may be a terrific time to make an offer on a summer cabin, review your debt history on your primary residence if you plan to borrow against it and deduct the mortgage interest on your federal tax return. Under the mortgage-interest guidelines, taxpayers are limited to the original acquisition debt, plus $100,000.

"For owners who have lived in their home a long time and who might have refinanced more than once, the mortgage-interest limit can easily be exceeded," said Rob Keasal, real estate tax specialist in the accounting firm of Anderson ZurMuehlen & Co. "If you borrow money to make major improvements on your primary residence, that amount is added to your basis. But if you are borrowing to buy another property or pay for college, the limits can be reached in a hurry."

You can deduct the loan fees ("points") paid to buy or improve your main home in the year of purchase. You cannot deduct these fees in the year you refinanced if you refinanced only to obtain a lower interest rate on your loan.

"Tax deductions differ from tax credits," Keasal said. "For example, a mortgage-interest deduction, like a charitable deduction, reduces your taxable income. They are not dollar-for-dollar tax credits that are subtracted from your tax bill. If you have a $1,000-a-month mortgage payment and are in the 15 percent tax bracket, only about $150 a month escapes being taxed in the early months of the loan."

To get even more valuable advice from Tom, visit his Second Home Center.

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