Tax Q&A;: Earthuake Damage

This daily tax season column publishes tax questions from readers answered by local members of the California Society of Certified Public Accountants. Questions and answers will be posted on The Times’ Web site, https://www.latimes.com/taxes, as they appear.

Q: I got a Small Business Administration loan in 1995 to repair earthquake damage to my home. The loan was sold to another servicing company, and for the first time I got a 1098 form showing the interest I paid for the year. Is this interest tax-deductible? Why now and not before?

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A: The interest on this loan or on any other home-equity loan is tax-deductible if the following conditions are true: 1) the loan was secured by your residence (in other words, the lender could take your home if you default), 2) the loan was less than $100,000, 3) the loan on top of your mortgage equaled no more than 100% of your home’s value, and 4) your total debt on your home was less than $1 million.

If all four conditions hold, then the interest on this loan is (and always has been) a potential write-off. To deduct the interest for previous years, you will need to file amended tax returns. You should file your 1995 amended return as soon as possible, because the statute of limitations on being able to get a refund expires three years from the return’s due date.

--Steven Jager, CPA

Sherman Oaks

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To submit a tax question, send it by e-mail to taxes@latimes.com; by fax to Tax Q&A; at (213) 237-7837; or by mail to Tax Q&A;, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. Your name will not be published, but you must tell us how to reach you in case we need to clarify your question.