What is mortgage debt incurred to acquire, construct, or substantially improve a primary or secondary residence called?

• A. Personal debt
• B. Credit card debt
• C. Acquisition indebtedness
• D. Student loan

Answer: (C)

This term refers to the mortgage debt that's tied to buying, building, or substantially improving a home. When you take a loan to acquire a primary or secondary residence, the debt is considered acquisition indebtedness because it is secured by the home and used for its purchase or major improvements. That distinguishes it from other types of debt like personal debts, credit card balances, or student loans, which aren’t incurred to acquire or substantially enhance a residence and thus aren’t classified as acquisition indebtedness. This distinction matters because lenders and tax rules treat acquisition indebtedness differently, particularly regarding interest deductibility within certain limits.