What is 'Acquisition Debt'
A financial obligation incurred through the construction, improvement or purchase of a primary or secondary residence. A home mortgage is an example of an acquisition debt. The Internal Revenue Service (IRS) provides certain tax advantages for home acquisition debt. Taxpayers can deduct the interest paid during the tax year for mortgages that qualify as home acquisition debt. The IRS considers home acquisition debt to be any mortgage after Oct. 13, 1987 that was used to buy, build or substantially improve a main or secondary home. The mortgage must also be secured by that home.
BREAKING DOWN 'Acquisition Debt'
If the mortgage amount is more than the cost of the home, plus the costs associated with any substantial improvements, only the debt that is not greater than the cost of the home plus improvements will qualify as home acquisition debt. The IRS limits the total amount of mortgage debt that can be treated as home acquisition debt. The total amount cannot exceed $1 million, or $500,000 if a married couple is filing as separate taxpayers. The IRS considers an improvement to be substantial if it adds value to the home, extends the home's useful life or adjusts the home to new uses.