Money from home mortgage used for buying rental property: deductible as business expense?

[cb1978]

I recently took a mortgage to buy a house. I will soon sell my previous house, and need to decide what to do with the money. I am considering using it to purchase a rental property instead of repaying the mortgage. Given the rising interest rates, it seems clear that it is better to keep my current fixed-rate mortgage and use the funds to buy the rental property, rather than repay the mortgage and then take a new one later for the rental property. However, I am not sure if my mortgage is portable from my current home to the new rental property. If it is not portable, I will be using a mortgage secured by my home to purchase a rental property. Will I be able to deduct it as a business expense, since the money will actually be used for this purpose, or will that be impossible because the loan is secured against a different property? (Any links to relevant materials will be appreciated.)

[KrisD15 · Accepted solution]

Yes,

the loan on your principal residence can be used to purchase a rental in which case the interest for that portion of the loan would ONLY be claimed as an expense for the rental and COULD NOT be claimed as home mortgage interest on your primary home. 

"Secured loan. The allocation of loan proceeds
and the related interest is generally not affected
by the use of property that secures the loan."

Pub 535

"Mortgage proceeds used for business or investment. If your home mortgage interest deduction is limited under the rules explained in Part II, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 2 near the end of this publication. It shows where to deduct the part of your excess interest that is for those activities. The Table 1 Instructions for line 16 in Part II explain how to divide the excess interest among the activities for which the mortgage proceeds were used.

Pub 936

[cb1978]

Thanks for the quick and detailed response!