In 11/22 I bought rental with primary home equity loan (not HELOC).

Forum|Forum|3 years ago
January 22, 2023
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I got a 156k home equity loan on my primary residence in Aug. 2022. I used about 75k for down payment and closing costs on a rental property which I closed on November 2022.

I have had the house listed/advertised for rent since November, but I have not gotten a tenant yet so zero income in 2021.

How do I list the equity loan on my primary residence and separate out the 75k (if I am supposed to) to show it as the closing costs and downpayment on the rental property?

And how do I add the new rental on my taxes? I assume that I would list it as a rental just like I have with the other two but since it has not had a renter yet and since I just closed in November, I'm not sure if I should list it for 2021 taxes as a rental or not. What options are available to me?

I have two other rental properties that I have owned since 2019 which have been rented for all/most of 2021.

thanks.

Michael

Carl11_2

Employee

I am assuming the loan you refer it is "IN FACT" a secured loan that is secured by your primary residence. If it is not secured by your primary residence, then you can not claim any of the interest on that loan on SCH E.

Go ahead and enter the rental property in the Rental & Royalty Income (SCH E) section of the program, with an "in service" date that is the earliest date a renter "could" have moved in. Usually, that's the day you started advertising it for rent.

When asked for "days rented" try entering a zero, in case the program accepts it. If the program will not accept zero days rented, then enter 1 day and it'll accept it without forcing you to delete the property from the SCH E. Of course, for rental income you'll enter $0 and that's fine.

For the interest deductions, you can only claim that percentage of the interest paid on that loan, that is equal to the percentage of the borrowed money used to acquire the property. So if the loan was for $150K and you used $75K for down payment and other closing costs on that rental property, you can claim 50% of the interest on SCH E. Additionally, you can amortize 50% of your loan acquisition costs on the SCH E.

The remaining percentage of interest is claimed on SCH A *ONLY* if certain conditions are met. Basically, if that remaining money was used to "build, acquire, or improve" your primary residence (the one that secures the loan) then you can claim the interest (or percentage thereof) as a SCH A itemized deduction. If it was not used for that, then you can't claim/deduct it.