How do I deduct HELOC interest from rental property?

Forum|Forum|6 years ago
June 5, 2019
2 replies
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We took out a HELOC against our rental property to help pay for improvements on our primary residence. Do I apply the interest deduction to the rental property or our primary residence?

TurboTax Home & Biz Windows

Best answer by PatriciaV

If the loan is secured by your rental property, the mortgage interest is reported as a Rental Expense.

Note that if any portion of the loan proceeds are used for something other than the rental property, the portion of interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Chapter 4 of Pub. 535 explains mortgage interest in detail: https://www.irs.gov/publications/p527/ch01.html

PatriciaVAnswer

Employee

If the loan is secured by your rental property, the mortgage interest is reported as a Rental Expense.

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robert10

To Clarify....HELOC taken on rental property that is used as down payment for primary residence is deducted as interest on taxpayer's schedule A for primary residence and NOT as a rental expense?

Jamie CPA

It's not deductible on E but could be taken as investment interest on A but not deductible for your primary residence because the interest isn't secured by your primary residence.

taxmodern

Ok there are a lot of confusing answers here that don't really apply to the original question.

It doesn't matter what property secures a loan, it only matters how the loan money is used. See the loan tracing rules explained in IRS publication 535 in the Allocation of Interest chapter. If you have a HELOC, cash-out refi, etc. from your home or any property, you can use that money to buy/improve a rental property, and then the interest from that loan is deductible as an interest expense on the Schedule E for your rental property.

The answers that talk about interest deductions for your home on Schedule A, Tax Cuts and Jobs Act, Pub 936 qualified home interest, etc. aren't applicable to the original question (but they might be answers to other questions people asked later in these posts).