@drk95 wrote:
My wife & I are retired. In 2019 we did a cash out loan on a second home which we own. We used all of that money to purchase a townhouse as a rental property. We were remodeling it for most of 2020 and finally had renters move in 8/2020. We did not claim any Schedule A interest on that loan in 2020. Both the properties are titled in our trust along with our primary residence.
Can I deduct the loan payment on the 2nd home loan as a business expense on the rental property for 2021?
You are posting at the bottom of a 2 year old discussion. You should read the entire thing.
You can deduct interest on a loan used to improve rental property as a rental expense, even if the loan is not specifically secured by the rental property. However, you must be able to trace the loan dollars so that you can allocate the interest to the rental property. As long as the HELOC is only used for the rental property, that allocation and tracing is straightforward. But if you use the loan proceeds for other things, it becomes more and more complicated, and your deduction becomes more at risk in case of audit. It all comes down to how reliably you can trace the loan proceeds and allocate the interest as a rental expense.
