Please I have a situation where I applied for HELOC about $100k to acquire a new construction rental property but the construction is delayed 6months. The bank is offering some really attractive rates for the first 6 months after HELOC closing so I am looking at closing and then investing the money in a high yield CD for the first 6 months and also start making payments early towards the HELOC to get a head start on payback. Please can you advice on how the interest tracing rule would work when I eventually use the money to close at the end of the 6 months wait. I am assuming that I will deduct the interest paid in the first 6 months against the gains on the CD which counts towards personal income(this is deductible right?), and then all the interest paid after closing date will be traced and applied as expenses or can you advise on how it will be treated after closing on rental property. So we are in April, lets assume rental property closing is in October on the rental property and I put the $100k HELOC in a CD that earns $3k in 6 months and paid $2900 in interest in the 3 months. From October to December after closing I pay another $3000 in interest on the HELOC after rental property closes with money used as down payment, Can you please help with how it will be traced.
