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10 Rules for Asset Protection Planning

Asset protection planning defends your assets from future creditors, divorce, lawsuits or judgments. How can you best plan to protect your personal and business assets? Here are some guidelines to implement strong asset protection.

  1. Plan Your Asset Protection Strategy BEFORE You’re Sued
    Once a lawsuit has arrived, it’s too late to put protections in place and there is little you can do. Take action before a claim or liability arises. In fact, a strong asset protection structure can discourage lawsuits because the better protected your assets are, the stronger a deterrent it is.
  2. Keep Your Personal and Business Assets Separate
    If you don’t insulate your own assets from those of your business, you could be in trouble. If you operate your business in the form of a sole proprietorship or as a general partnership, these businesses are not registered entities, which means that your personal assets are not insulated from those of your business.
  3. It’s Risky to Be A Sole Proprietor
    As an example, if you’re a sole proprietor and an angry customer sues you, any assets you own such as your house or car are not protected. Nor are financial assets such as your bank account. These can all be taken should a judgment be found against you.
  4. A Two-Man Partnership is Double the Risk
    Maybe you have thought about forming two-man partnership with your friend. This may perhaps be an even worse idea than operating as a sole proprietorship. What this means is that you are as liable for your friend’s errors as you are for your own. You are also liable for anything purchased in the name of your partnership. Remember that one partner’s signature is enough to bind both partners to a debt or other type of obligation. Again, this leaves you unprotected and without any recourse should something happen; you could be left holding the bag.
  5. Use a Registered Corporate Entity for Asset Protection
    To protect yourself, use a registered corporate entity. Most people don’t realize there’s a risk in keeping assets and property in your name, which also means keeping the liability and the risk. To succeed in business, to protect your assets and to limit your liability, you want to select from one of the good entities / structures that are truly separate legal beings. They are:
    • C Corporations
    • S Corporations
    • Limited Liability Companies (LLCs)
    • Limited Partnerships (LPs)

    Each one has it’s own advantages and specific uses. Each one is utilized by the rich and knowledgeable in their business and personal financial affairs. And, depending on your state’s fees, each one can be formed for $800 or less so that you can achieve the same benefits and protections that sophisticated business people have enjoyed for centuries.

  6. Meet Annual Requirements so That Legal Protection Remains Intact
    You’ll need to keep your company’s registration up-to-date, hold annual meetings and keep annual minutes, keep business funds separate from your own, and avoid signing any business-related documentation in your name. This is known as maintaining the corporate veil and we provide this service to many of our clients. This keeps your own assets separate from those of your business. By the same token, you are also protected from any debts or disasters incurred by your business.
  7. Protect Your Business Assets in a Business Entity
    You need to protect your business and real estate assets from yourself. A limited liability company is an excellent way to help protect key assets. (Learn how to become incorporated now.) For example, if you have a rental property, you should hold assets either in a limited partnership or in an LLC. These protect you from personal liability if anything should happen on the property and it also provides you another advantage. Should someone become injured on your property, you are protected from being sued directly by the tenant. Remember that the business’s assets are still at risk of suit should the tenant decide to sue. However, if you have adequate insurance, you can help protect yourself from having the claimant lay claim to your assets so as to satisfy your obligation. This strategy comes with a caveat though.
  8. Ensure You Have a Comprehensive Commercial Insurance Policy
    A comprehensive commercial insurance policy can help you keep the property instead of having it end up as a part of a court-ordered settlement. What should you look for?
    • The liability insurance should cover injuries to third parties on your property.
    • It should cover trespassing, especially if you have undeveloped or vacant land.
    • If you have people working on your property as your employees, you should also have Worker’s Compensation insurance.
    • The insurance should also have “increased cost of construction” additions if your building should become damaged or require reconstruction. That means you’ll be covered at today’s construction prices instead of those of previous years.
    • If you are a landlord, “loss of rents” riders can help you recover costs in the event your building is damaged and uninhabitable so that you can pay relocation costs or receive income from the property while it’s being rebuilt to offset right losses.
    • A final consideration is a “higher limits” rider, so that you have extra protection in the event a catastrophic claim is filed in one of these categories.
  9. Use Entities as a Second Line of Defense
    It is extremely important to carry adequate and proper insurance coverage, but as we know, insurance companies have an economic incentive to avoid covering all claims. They find reasons to deny coverage. So while you will have insurance you will use entities as a second line of defense to protect your personal assets from your business claims.
  10. Avoid Incorporation Scams
    You need to know that there are a number of other corporate information scams in the marketplace. A popular one is the $99 incorporation. For just $99, they claim you will be bulletproofed and asset-protected. “C’mon down. We’ll set you right up”, they say.

    We have tested such services to see how they could possibly do all the work necessary to completely and properly form and document a corporation or LLC for just $99. These providers fall into two camps.

    1. The first camp does the minimal work needed to form an entity. They file the articles. That’s it. Once you pay the $99 they will no longer take your phone calls or questions. Eventually you will be sent a document with a state seal on it indicating that you are incorporated. But you will not be sent the minutes, the bylaws, or any issued stock – all of the other components necessary to be a complete corporation. Of course, if you hadn’t read this article, you would probably think in your blissful ignorance that for just $99 you were protected. You are not.
    2. The second camp uses the $99 as a come-on. They offer an a la carte menu in which the $99 is just for the filing of the articles. The bylaws are another $350. The meeting minutes are $250, and so on. By the time you are done they have gained your confidence and that $99 has ballooned up to $2,000 to $3,000 for just one entity.

How to Avoid Being a Victim of Rental Scams

If you own a rental property, are scammers misusing your assets?  If you are trying to rent, are you aware of the latest scams?  

According to data reported by Forbes in July 2018, U.S. renters lost a staggering $5.2 million to rental scams. And an Apartment List study reveals that 43.1 percent of American renters—nearly half—have encountered or fallen victim to rental scams. Though its victims range in age and characteristics, the Apartment List study found that victims are 42 percent more likely to be between the ages of 18 and 29—a population that tends to be inexperienced, in need of affordable short-term rentals, and with less household income to start with. This is a demographic that might need to rely on renting a place sight unseen, especially in the case of students from out of state or starting internships in strange cities. The below-market rental listing is likely to appeal to this group. As well, although Millennials are tech-savvy, they tend to be surprisingly trusting when it comes to scams, and they’re not likely to perform much due diligence in securing a rental.

Apartment List says the following are the standard rental scams that it found in its study:

Bait and Switch

Sure, there’s a property for rent, but it’s not the impressive one advertised. The scammer collects a deposit and a signature on a lease, but once the renter signs, he or she is stuck with whatever overpriced hovel the landlord actually provides the keys to. But even that is preferable to the alternative—at least there’s a place to live, unlike …

Phantom Rentals

Like the vacation rental scam, this one banks on a poor schmuck who needs a place to live. The scammer creates a fake listing for a place that doesn’t exist, isn’t actually a rental, or that he/she doesn’t own. The relatively low rent lures renters, who wind up with nothing to show for their money. 

Hijacked Ads

A scammer gets hold of a listing for an actual property for sale or rent, tinkers with the ad, then reposts it on another site with his or her own contact information. 

Missing Amenities

The Apartment List study found that laundry, heat, and air conditioning are the amenities most lied about in rental listings. Others include outdoor spaces (such as balconies), dishwashers, gyms, and pools. In a missing-amenity scam, the landlord dolls up the listing online by claiming it has amenities like these and others, which it doesn’t have, in order to justify a higher rent. Similar to a bait and switch, the renter doesn’t discover what’s lacking until he or she has already signed the lease and paid the deposit. (“A gym? No, no, I said Jim. My name is Jim. Sorry about that. Here’s your key.”)  

Already Leased

It’s already leased, but a scammer or a crooked landlord doesn’t care—he’ll keep right on advertising the property, collecting application and security and deposit fees all day. 

A Real-Life Rental Scam

In a variation on this theme, some scammers “rent out” properties that are temporarily sitting empty—a crime that involves two victims, the homeowner and the innocent person who just needs a place to rent. The scammer scours neighborhoods looking for homes with no occupants, such as those that operate as second homes or those sitting empty between renters. They may even go so far as to change the locks or steal spare keys the owners may have “hidden” nearby. Once they’re in, they might just stay there. 

Sixty-nine-year-old Beverly McKinney of Central Indiana was on a fixed income. She went on Facebook to find a rental for herself and her two great-granddaughters. Using a page intended to connect homes with renters, she found a great three-bedroom home in Anderson, Indiana. She reached out to the landlord, who asked her to fill out a contract and send the $500 deposit via MoneyGram. Once that was sent, the woman told McKinney, she’d send the keys. But no keys ever came, because the property’s actual owner, Steve Wagner, had already rented the property and had no idea who McKinney was or what had happened to her $500. 

According to The Indy Channel, her local ABC affiliate, McKinney reported the incident to the police, whose investigation uncovered that the Facebook page—containing numerous grammatical errors, frequently pushes for more money, and has a suspicious friend total of one—had been taken down, and the MoneyGram had been picked up by a man at an area Walmart. Chances are slim that she’ll see that money again.

“I just don’t want anybody else to get burned,” McKinney said to the TV reporter who interviewed her for the story. “It’s terrible … I lost $500 and my dignity.”

The problem with rentals is that they can be tough to find, especially in a hot market, and often involve your need to move quickly. So before you jump headfirst into a sweetheart rental deal, take a few precautions:

  • Say it with me now: If it’s too good to be true… Trust your gut. You probably aren’t just getting really lucky with that low rent, world-class amenities, perfect location, and no-screening process. If your gut says something is off, listen.
  • Check for that listing on other sites to see if it’s corroborated elsewhere. Sometimes scammers hack a listing on one site and repost their own versions on other sites. Confirm that the contact information is the same in every instance. Sometimes they’re even found in multiple cities and at widely varying prices.
  • Don’t make decisions on the fly. Your landlord should be methodical about doing a lot of checking on you, and you should exercise the same discretion. Anyone who eagerly promises to get you in quickly and skip the background check isn’t operating honestly.
  • Never rent anything sight unseen. Never send money or share personal information unless you’ve met the person and visited the property. It’s also a good idea to take someone with you. Avoid anyone from out of state or overseas, as that’s usually a way to justify asking you to wire money to a foreign account.
  • Watch for listings without photos or addresses, and double-check addresses on Google Earth, or just drive by, to be sure it matches the listing in quality and appearance.
  • Avoid deposits that seem out of proportion or higher than normal, and never use cash, MoneyGrams, or wire transfers. That’s just asking for trouble. Use credit cards or checks only.
  • Some websites are more reputable than others when it comes to finding quality listings. Craigslist is often problematic and filled with false ads and bait-and-switch tactics. Stick with higher quality sites such as Apartments.com or StreetEasy.com.
  • Use a professional. This means finding an agent to help you locate a quality rental, or working with a reputable property management company.

Landlords and potential tenants need to be aware of all miscreants inhabiting the internet.  Everyone must be cautious nowadays.

9 Rules to Consider Before Signing an Arbitration Provision

By Theodore Sutton

Binding arbitration is becoming a popular method to resolve disputes in real estate transactions. Arbitration provides certain advantages that courts do not. For instance, arbitrations are private, they resolve disputes in a more timely and efficient manner, and they obviously provide a much cheaper alternative to a full-on court trial. While arbitrations provide all these benefits, parties entering a contract must pay special attention to the language written in arbitration clauses. Many undesirable consequences can arise if the language in these clauses is vague and unsatisfactory, such as having unenforceable provisions or prohibiting the use of discovery. While laws differ from state to state (and be sure to consult your own attorney) below are some general issues to be considered before an arbitration provision is signed:

1. Transaction Documentation – The arbitration provisions are required to be included as an alternate dispute resolution matter within the transaction documentation. These provisions should be more general in order to encompass different types of disputes, such as tort and contract disputes. Stand-alone arbitration agreements are more definitive, and may be useful to also be included within the documents related to your specific transaction.

2. Arbitration Commencement – A provision acknowledging that both parties are voluntarily agreeing to an arbitration must be included in the contract. It is also imperative that this provision states that:

  • The parties are knowingly and voluntarily waiving their right to a jury or court trial.
  • Any uncooperative party be compelled to arbitrate through a court order.
  • The arbitration is binding and may not be appealed. (Know that some states don’t provide for exceptions).

3. Arbitrator Selection – These selection provisions must be clearly established so both parties will have a say in selecting the arbitrator, the person deciding your case. This is important because it allows both parties to select either an experienced retired judge or appellate justice, a private attorney or a licensed arbitrator.

4. Rules of Evidence – In some states, arbitrators are allowed to be “arbitrary.” The easiest way to avoid this is to include an arbitration provision that requires the arbitrator to follow to the rules of evidence in legal proceedings.

5. Discovery – Discovery rights (the right to discover the other side’s evidence) must be specified. Otherwise the arbitrator is not required to permit discovery. Specific dates and times must be provided in order for the discovery to be conducted.

6. Court Reporter – Court reporter costs are frequently ignored. One way to prevent this is to share the cost in the contract to avoid disputed fees.

7. Initials – Arbitration provisions must be initialed by both parties within the contract in order for them to be enforceable.

8. Exceptions – Exceptions from arbitration may be included in arbitration provisions. Some common exceptions are foreclosure proceedings, unlawful detainer actions, and injunctive reliefs.

9. Judgment Entry – In some states, it is required to authorize the arbitrator to enter their award as a court judgment.   Arbitration can save your time and money. But as with any legal matter, you want to do it right. This starts with a good contract. Be sure to consult your attorney on arbitration issues. As mentioned, the rules vary from state to state.

Theodore Sutton is a graduate of the University of Utah and will attend the University of Wyoming Law School in the Fall of 2019.

Protect What’s Yours: The Top 10 Benefits of Incorporating Your Business

Starting your business from scratch is a big deal. There are a million details to take care of, and the list of demands can seem endless. Small business owners have to hire employees, worry about taxes, and find ways to maximize profits while keeping costs as low as possible. Every smart business owner should consider the benefits of incorporating. This is an important decision that has a significant financial impact. Let’s take a look at the reasons why this is a smart move by helping you understand a few of the benefits.

Protect What’s Yours: The Top 10 Benefits of Incorporating Your Business

Have you heard about business incorporation but aren’t sure why it’s worthwhile? Read on to learn the top 10 benefits of incorporating your business.

1. It Protects Your Personal Assets from Lawsuits

Incorporating creates a safety barrier between you and your business. This is important because believe it or not, if you don’t incorporate your business, you run the risk of losing your personal assets when sued. Incorporating protects your personal assets if a lawsuit is filed against you.

2. It Protects Personal Assets From Creditors

Incorporating also protects your personal assets from creditors wanting to collect on business debts. This is accomplished by forming an LLC, or a C or S Corporation that protects your personal property in the event that your business falls on hard times. When not incorporated, your personal property will be automatically linked to your business, including your home, investment accounts, cars, as well as future assets.

3. It Makes It Easier to Transfer the Business

Someday you may wish to sell your business or pass it on to a member of your family. Or perhaps you will get sick and no longer have the energy to continue running things. This is something many people don’t think about until they are near retirement. When you are running a sole proprietorship, all of your personal property is linked to your business, making it very difficult to value the business or transfer it to someone else. Incorporating makes this process much easier.

4. It Allows Your Business to Grow Long After You’re Gone

The reality is that you won’t be around forever. Despite this, you will likely wish for your business to flourish long after you’ve passed away. When you are incorporated, probate won’t touch the business directly. The business will simply go directly to the new owner assuming you have the proper documentation in place.

5. It Has Huge Tax Benefits

Incorporating also offers massive tax benefits, such as the ability to deduct travel expenses and Social Security taxes that you’re paying into the system, deduct business losses, and claim some daily expenses required to operate the business. Keep in mind that when you make the transition from being a partnership or a sole proprietor to an LLC or similar business structure, there are a multitude of deductions available to you that weren’t at your disposal as an individual.

6. It Makes It Easier to Raise Investment Capital

Another significant advantage of incorporating your business is the access it gives you to raising vital capital. The ability to borrow money is very important to any business, and being incorporated adds a legitimacy that helps when applying for loans. It also allows you to open bank accounts and establish lines of credit that will make it easier and more efficient to operate your business.

7. It Makes it Easier to Sell Your Business

Incorporating also adds legitimacy to your business in other ways. Sole proprietors simply aren’t as attractive to potential buyers. This is due to the fact that corporations are easier to track and manage, and they tend to be more stable. These are things that are of the utmost importance from an investor’s perspective. Being incorporated also gives you a leg up when there are competing businesses that a buyer might be interested in.

8. It Helps Protect Your Brand

When it comes to owning a business, branding is everything. Keep in mind that if you don’t take the necessary steps to protect your brand, it’s possible for someone to swoop in and steal it. That’s why incorporating is also important for protecting your brand. This includes everything from your business name, slogans, logos, and colors that represent your brand, to trademarks and any designs that distinguish your business from everyone else. Not sure if you’ve got a brand worth protecting? There are some tweaks you can do immediately to improve your brand.

9. It Makes Establishing Retirement Accounts Easier

When you own a business, you want to make sure that you and your employees are taken care of beyond a basic paycheck. Many companies provide health savings accounts and retirement accounts to help employees plan for the future. Incorporating makes this process less expensive due to tax-advantages, and there is far less red tape involved in setting these types of accounts as a corporation compared to a sole proprietorship. And even if you don’t have employees, there are still plenty of advantages to setting up accounts for yourself by incorporating your business.

10. It Helps Protect Your Privacy

One of the biggest benefits of incorporating your small business is something you might not have considered. When your business is incorporated, you’re better able to keep your personal information hidden. This is especially vital for companies who need to closely protect trade secrets. For many companies, this level of privacy is what helps them maintain an edge on the competition. Incorporating allows you to keep all of your business affairs private, and they will be kept completely confidential unless you make the decision to disclose them.

Taking Your Business to the Next Level

When you take the time to consider the benefits of incorporating, it really doesn’t make sense not to. After all, the advantages of incorporation not only include ways to save money, they also provide brand protection and allow you to more effectively manage the long-term needs of your employees. As you can see, there are plenty of good reasons to incorporate, and far fewer reasons not to. So take your business to the next level by incorporating! For more helpful information, click here to learn 11 tips for establishing credit for your company.

Do Land Trusts Provide Asset Protection?

Have you heard that land trusts provide asset protection? Do you believe it?

Applicable Law

Two cases from Illinois concluded that, in a land trust, although the legal and equitable title lies with the trustee, most of the usual attributes of real property ownership are retained by the beneficiary under the trust agreement: (1) Just Pants v. Bank of Ravenswood, 136 Ill.App.3d 543, 483 N.E.2d 331, 335-36 (Ill.App. 1985); and (2) People v. Chicago Title and Trust Co., 75 Ill. 479, 389 N.E.2d 540 (Ill. 1979).

Just Pants v. Bank of Ravenswood

In Just Pants v. Bank of Ravenswood, 136 Ill.App.3d 543, 483 N.E.2d 331, 335-36 (Ill.App 1985), the lessee of property which was subsequently sold under a land trust sued the trustee of the land trust for conversion and breach of contract. Following judgment in favor of the trust, the trial court granted the lessee’s motion to amend the complaint and judgment to include the beneficiaries, and entered judgment against only the beneficiaries. The beneficiaries appealed, and the Illinois Court of Appeals held that reversal was required where the reviewing court had no way of knowing the respective responsibilities of the trustee and the beneficiaries. 483 N.E.2d at 333-34. The Court noted that, in an action involving a land trust, the question of whether the beneficiary or the trustee is the proper party depended upon the nature of the action in light of the rights and duties established by the trust agreement. The Court pointed out that the beneficiary in a land trust is the proper party to litigation involving his rights and liabilities of management, control, use and possession of the property; and, moreover, that beneficiaries in land trusts oftentimes retain managerial rights in the property, and in exercising these rights, enter into a variety of contractual arrangements resulting in the accrual of causes of action against then that do not involve the trustee. The Court observed that actions sounding in tort involving land trust property usually arise from the operation and maintenance of the property; that such causes are based on negligence, and accrue against only the beneficiary, and not the trustee; and that the trustee is insulated from these responsibilities if he has no rights of possession, operation, control, or maintenance. Thus, the Court concluded that trustees who hold legal title to realty through a trust agreement are not liable for damages resulting from defects in the trust premises when the agreement gives the beneficiaries, and not the trustees, the power to make the needed repairs; and furthermore, that beneficiaries can also be held responsible for the torts or frauds of the trustee where they participate in or authorize the commission of the wrongs. 483 N.E.2d at 335. The Court remanded the case to the trial court to determine the respective responsibilities of the trustee and the beneficiary under the trust agreement. 483 N.E.2d at 336.

People v. Chicago Title and Trust Co.

In People v. Chicago Title and Trust Co., 75 Ill. 479, 389 N.E.2d 540, 542-43, 546 (Ill. 1979), a consolidation of six separate actions brought in the name of the People of the State of Illinois to recover unpaid real estate taxes on land held in land trusts, the State sought to impose personal liability for the real estate taxes on the following three entities: (1) the banks or trust companies in their individual corporate capacities; (2) the banks or trust companies in their capacities as land trustees of land trust property; and (3) the beneficiaries of the land trust, all as “owners” of the tracts of land trust property. The trial court found the trustees in their individual corporate capacities liable, and dismissed the cases as to the banks and trust companies as trustees, and as to the beneficiaries. 389 N.E.2d at 542. The Illinois Supreme Court granted motions for direct appeal, and held that, since the beneficiaries of a land trust controlled the purchase, sale, rental, management, and all other aspects of land ownership and title; and since the trustees could act only upon the beneficiaries’ written direction, the beneficiaries were “owners,” within the meaning and intendment of the statute providing that “owners” of realty shall be liable for taxes. As such, the beneficiaries were personally liable for the unpaid real estate taxes. The Court stated that the realities of land ownership clearly indicated that land trust beneficiaries were “owners”; and that, as “owners,” they were personally liable for the unpaid real estate taxes. 389 N.E.2d at 546.

In so concluding, the Court reviewed the history of the Illinois land trust. The Court noted that the Illinois land trust was a unique creation of the Illinois bar, although its acceptance elsewhere had received a great deal of attention. The Court pointed out that its origin was rooted in case law rather than in statute; and that, over the years, the land trust had served as a useful vehicle in real estate transactions for maintaining the secrecy of ownership and allowing for the ease of transfer. The Court noted that, despite recent disclosure statutes, the Illinois land trust remained a widely utilized and useful device. 389 N.E.2d at 543. The Court emphasized that, in land trusts, the legal and equitable title lies with the trustee, and the beneficiary retains what is referred to as a personal property interest; however, most of the usual attributes of real property ownership are retained by the beneficiary under the trust agreement. In fact, the Court observed that the only attribute of ownership ascribed to the trustee is that relating to title, upon which third parties may rely in in transactions where title to the real estate is of primary importance. 389 N.E.2d at 543.

Conclusion

The prevailing belief, that land trusts protect property owners from all liability, is not even true in Illinois, which originated land trusts.

New Rules for HELOCs

Your Home is No Longer a Full Service Tax Deducting ATM

Have you ever tapped the equity in your home to pay for a new car or a college tuition? With a HELOC, also known as a home equity loan or line of credit, you could do so. Better yet, you could deduct the interest you paid on those loans on your tax return.

The new tax law has changed all of this (at least through 2025, when this portion of the tax law expires). With over 14 million HELOCs borrowing over $500 billion, the new rules affect many Americans for the tax year starting 2018.

You can still tap into your home’s equity for whatever you want. But under the new tax law, you can’t deduct the interest in every circumstance. And there are limits on how much you can deduct even if you are using the money correctly.

What is a proper usage for an interest deduction?

Borrowings used to “buy, build or substantially improve” your home are accepted. Fast cars are not. (But again, you can still buy the car and just not deduct the interest.)

The borrowing must be used to improve the house securing the loan. So you can’t use a HELOC on your primary residence to improve a vacation home.

Interest can only be deducted on the total debt of up to $750,000 for up to two homes. If you had a debt of up to $1 million on one or two homes before December 15, 2017 (the last date before the tax law changed) you can still deduct the interest if the money was used to improve, build or buy a home.

How does the $750,000 limit come into play?

Let’s say John has a $700,000 mortgage on a primary residence and borrows $100,000 on a HELOC to make improvements on that property. His total borrowings are now $800,000. John can only deduct interest on the first $50,000 of the HELOC. The remaining $50,000 in interest is over the $750,000 limit.

Mary has a primary residence and a vacation home. Her residence has a $300,000 mortgage on it with the vacation home having a $200,000 mortgage. Her total borrowings are $500,000. Mary then borrows $100,000 against each property. The money borrowed against her primary residence goes for improvements on that property. Likewise, the $100,000 vacation home borrowing is used for a landscaping project on that property. Mary’s total borrowings are now $700,000. Because she used the money the right way on each property she can deduct the full amount of interest on the $700,000 in loans.

There is another wrinkle to be aware of here. You can only deduct interest on a HELOC of up to $100,000. And that HELOC deduction is limited to the price you paid for the property.

Let’s say you bought a Detroit fixer-upper for $50,000. Somehow, you are able to get a HELOC on it for $75,000 so you can completely remodel it. You can only deduct interest on the first $50,000 of the loan, because that is what you paid for the place.

Once again, the tax law benefits single persons. Two singles could deduct a combined $1.5 million in mortgage debt ($750,000 each) if they bought a home together. Married couples are limited to the $750,000 amount.

Of course, record keeping becomes important in this arena. You’ve got to be able to prove all of this up to the IRS. Track your spending and save all of your invoices. If you don’t already have one, consider using a bookkeeper to assist with it. Save these records for a good long time. The IRS may take years to get at any audits on this. You may need to be prepared into the distant future.