How do I deduct HELOC interest from rental property?

[TaxesSL]

We took out a HELOC against our rental property to help pay for improvements on our primary residence. Do I apply the interest deduction to the rental property or our primary residence? 

[PatriciaV · Accepted solution]

If the loan is secured by your rental property, the mortgage interest is reported as a Rental Expense.

Note that if any portion of the loan proceeds are used for something other than the rental property, the portion of interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Chapter 4 of Pub. 535 explains mortgage interest in detail: https://www.irs.gov/publications/p527/ch01.html

[robert10]

To Clarify....HELOC taken on rental property that is used as down payment for primary residence is deducted as interest on taxpayer's schedule A for primary residence and NOT as a rental expense?

[PatriciaV]

@robert Yes, if the proceeds of the HELOC are used for a primary residence, the interest would NOT be a rental expense. Instead, report the HELOC interest on Schedule A (mortgage interest).

[gratesto]

How about if I tool a HELO on my house to buy rental property?

[Jamie CPA]

The interest can't be deducted on Sch A if it isn't secured by the primary residence.  

[Jamie CPA]

It's not deductible on E but could be taken as investment interest on A but not deductible for your primary residence because the interest isn't secured by your primary residence.  

[John60]

Can I deduct interest on a Sch E (Rental Property) if I used my PRIMARY RESIDENCE ELOC to purchase the rental property?

The ELOC would be used exclusively for the rental property.

[John60]

I cant seem to find a concrete answer to this question:

I have an ELOC on my primary residence.

I want to use that ELOC to buy a rental property. That ELOC would be exclusively used for that purpose and not used for anything else.

CAN I DEDUCT THE INTEREST ON SCHEDULE E?

[Critter · Accepted solution]

Tracing rules apply if you get a HELOC on the primary residence and use it on the Sch E ...

https://www.cbiz.com/insights-resources/details/articleid/6339/ispreview/true/deducting-interest-on-...

[anthonywright13]

The IRS rules say heloc int can be deducted if used to buy, repair, or improve property it is secured by. How would you use a heloc to buy the property you already have a heloc on. I believe a heloc can be used and deducted for down payment funds on your primary residence. 

[tamtrinh]

I took the HELOC loan $150,000 is secured by the first rental property. I used that $150,000 for downpayment of the second rental property. Can I deduct interest of HELOC on the second property? Please advise. Thank you.    

[AmeliesUncle · Accepted solution]

@tamtrinh   Yes.  Deduct the interest on the property where the money was actually spent.

[tamtrinh]

Thank you so much. I read Publication 527, 936, and 535 from IRS website. I have not found out where it says I can deduct HELOC interest on Rental property. 

I saw " Note. Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan." on Publication 936, on page 2. 

Please send me a link or paragraph that states HELOC or equity loan interest can be deducted. 

Thank you 

Tam Trinh 

[AmeliesUncle · Accepted solution]

@tamtrinh   Look at Critter's comment above about the "Tracing Rules".