Loan Interest

[Guest mgreenwald]

Is the interest on a loan taken from a participant's 401(k) that is being used for a 2nd home mortgage deductible just like a mortgage or a home equity loan?

[Guest JCatt]

I believe IRC 72 (p) (3) says that interest is deductible if the loan is SECURED by the residence. Generally this isn't the case, as the loan is secured by the participant's account balance.

- JCatt

[alanm]

You can make it deductible by getting a lien in favor of the plan and having the lien recorded at the court house. Under IRC sec 163 it is deductible subject to being able to trace the loan as acquisition debt of a house. The payments to the plan would be tax deductible. However, you have costs to record the lien.

[mbozek]

Note: IRC 72(p)(3)(B)(ii) denies the deduction to the extent the loan is secured by amounts attributable to electrive deferrals.

[QDROphile]

If the loans defaults, the plan administrator had better be prepared to foreclose on the real property.