@prash wrote:
@Opus 17
If we map the logic you mentioned, how the tax deduction will look like?
Just for an example:-
Usage of Funds:
Downpayment of an InvestmentProperty paid via all of the following, is eligible for interest deduction to offset rental income ?
Source of Funds can be:
1.)CashoutRefinance on primary
2.)CashoutRefinance on investment
3.)HELOC on primary
4.)HELOC on investment
5.)MarginInterest
6.)Credit Card Loan
Limitations:
Also is there a time limit, to show funds transfer made from loans to downPayment, to avoid losing eligibility?
Can i wait for 1-year for a better oppurtunity to arrive, and then use it for investment properties. Does that count for deduction?
Also, can i switch funds back and forth
For example, use it for:-
Stocks(First 6 months).
Take Profit, and then invest in Rental Investment
Etc...
I don't understand this question.
In general, investment interest is deductible up to the amount of investment income, and this is true even after the 2018 tax reform law, although it is more complicated to claim the deduction. (IRS section 163).
For example, if you borrowed $10,000 to invest in a bond that paid you $10/month in interest income, you could deduct up to $10/month of interest you paid on the loan, no matter where the loan was from (unsecured personal loan, credit card, or a property you own). You have to be able to trace the interest to the business purpose. If you used the same credit card to pay for a vacation, then the interest on the vacation gets muddled with the interest on the money used to buy the bond, and you probably lose the deduction if audited.
Separately (although related), if you buy a rental property with a commercial mortgage, the mortgage interest is a deductible expense against rental income on schedule E.
Putting these two things together means that, if you own property A free and clear, and you borrow from property A to purchase a new investment B, you can deduct the interest against income from investment B, assuming you can meet the tracing rules. You can't deduct the mortgage interest on property A against the rental income from property A, since even though the mortgage is secured by property A, the money wasn't used to purchase or invest in property A.
At least, this is my reading. I could be wrong.
If you bought property A with cash, then take a mortgage to buy a new property or investment B, then I would think the interest is deductible, subject to certain conditions, but I don't think that is what we were talking about. You wanted to buy property A fast with cash, then take a mortgage to pay yourself back, because what you really want to do is buy property A with a commercial mortgage (which would be fully deductible) but you are worried about delays. I think you might be able to treat the mortgage as a purchase mortgage by relying on the 90 day rule for mortgages on personal residences and saying that it is reasonable that the same rules be allowed for commercial property. But if your CPA says that, if you buy property A with cash, and then take a mortgage to pay yourself back, it's not deductible, then I would not go against the advice of the expert you are paying for.
