Hi all,
I have a multi-part question about mortgage interest on rental properties that I hope the community can help with.
Let's say I have a residential rental property (call this property 1) originally with no mortgage. I take out a home equity loan or HELOC (loan A) secured by property 1. I use 30% of loan A as down payment for another rental property (property 2), which is purchased with a mortgage (loan B). The other 70% of loan A is used as another down payment for a third property (property 3), which is also purchased with a mortgage (loan C). All 3 properties are actively rented out with zero personal use.
- Is the interest on loans A, B, and C all fully deductible as rental/investment expenses?
- If loan A were taken against my home instead of a rental property, is the mortgage interest on loan A still deductible as a rental/investment expense?
- Do I capitalize the loan expenses for loan A on a pro-rata basis between properties 2 and 3 (i.e. 30% toward the cost basis of prop. 2 and 70% toward prop. 3)?
Thank you all!
