@NCperson , @DawnC , as I read through 26USC163, agree that there is the possibility of different interpretation because of the use of "properly allocable" i.e. the question becomes can an interest payment ( prorated ) that is secured by a residence , be allocated to the "use" ----- I maintain, and absent case law, that "allocation " to business use is not qualified . Thus it is not deductible as an expense to the business. I agree the situation would be different if the business signed a loan agreement showing that there is an indebtedness for the amount on which an interest is being paid. That is why I suggested seeing a lawyer to set up a securitization so the interest payment can be passed through. Absent that I am not persuaded that the residential loan interest can be "allowably allocated" to a business venture. I am attaching relevant portion of the 26USC 163 below -- the full text is available at LII Cornel -- https://www.law.cornell.edu/uscode/text/26/163
26USC.163.
(h)Disallowance of deduction for personal interest
(1)In general
In the case of a taxpayer other than a corporation, no deduction shall be allowed under this chapter for personal interest paid or accrued during the taxable year.
(2)Personal interestFor purposes of this subsection, the term “personal interest” means any interest allowable as a deduction under this chapter other than—
(A)
interest paid or accrued on indebtedness properly allocable to a trade or business (other than the trade or business of performing services as an employee),
further down:
26.USC.163.
(3)Qualified residence interestFor purposes of this subsection—
(B)Acquisition indebtedness
(i)In generalThe term “acquisition indebtedness” means any indebtedness which—
(I)
is incurred in acquiring, constructing, or substantially improving any
qualified residence of the taxpayer, and
(II)
is secured by such residence.
