Schedule A or E? Where to put rental HELOC when used to finance principal residence?


May I ask ...
For federal tax purposes, what is the proper way to account for a HELOC
taken on a rental property where the HELOC proceeds were used solely to
assist in the finance of the purchase of a primary residence.
Does the HELOC interest go in schedule E (rental interest expense)?
Or does the HELOC interest go on schedule A (primary residence interest)?
Reply to
LM
It can't go on Schedule A because it is not qualified mortgage interest expense. The loan is not secured by your qualified home.
Reply to
Alan
Oh my! I had to exercise the HELOC last year to close on the principal residence and I'm doing my 2009 taxes.
Would the rental property HELOC interest be deductible on schedule E if I refinance from a HELOC to a 30-year fixed mortgage?
Reply to
LM
Unfortunately, no - because you can't trace the loan proceeds to a deductible use. The best you can hope for is to have enough equity in your principal residence (some day) so you can get a HELOC there and use those proceeds to pay off the rental HELOC. But that would not be acquisition debt, and so the interest would not be deductible for AMT purposes.
Reply to
Tom Healy CPA

I suppose one thing you might consider is seeing if the lender will take additional security for the same loan in your home as well as the other property. That could put you at additional risk if you ever default, however.
Reply to
Stuart A. Bronstein
If I pay cash for a rental property, and later take out a loan less than the purchase price, is the interest on that loan not a rental expense that is deductible?
Reply to
Reggie
Actually, I don't think so, unless the funds were plowed back into the rental, or if within 30 days of purchase of the property, so allocation rules can be applied.
Reply to
Arthur Rubin
Agree. Potentially the proceeds could be used to buy build or improve other rental properties and still be deductible against those activities.
-Mark Bole
Reply to
Mark Bole
Sorry. I do not understand.
If I have a $600K loan on the principal residence from bank1 for a $1.5M home; and if I have a $500K HELOC on the rental property from bank2 for a $650K home ...
Q1: Which bank do I proffer the additional security to? Q2: What could I use as that additional security?
Reply to
LM
The second loan is from bank2, and it went to buy the principal residence. So that's who you want to give the other security to. You want them to have security in the principal residence for the loan.
The only additional security you can use is a 2nd mortgage on the principal residence.
Reply to
Stuart A. Bronstein

Site Timeline Threads

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.