Taken 75k HELOC to buy rental property of 100k. HELOC Annual interest is 3k. I am a salaried employee in the 20% bracket. Can I claim interest deduction of the entire 3k?
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pa_chaits
New Member

Taken 75k HELOC to buy rental property of 100k. HELOC Annual interest is 3k. I am a salaried employee in the 20% bracket. Can I claim interest deduction of the entire 3k?

If I buy 3 other rental properties with HELOC on similar lines, is the entire interest deductible from my income ?
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Opus 17
Level 15

Taken 75k HELOC to buy rental property of 100k. HELOC Annual interest is 3k. I am a salaried employee in the 20% bracket. Can I claim interest deduction of the entire 3k?

You are taking an equity loan from your main home to buy rental properties.

In that case, you can deduct the loan interest as a rental expense on schedule E, or as personal mortgage interest on schedule A (but not both).

If you deduct the interest as personal mortgage interest on schedule A, your deductible mortgage amount is equal to the acquisition cost of your home plus $100,000.  The acquisition cost is what you paid, plus the cost of any permanent improvements.

  • Let's say you bought your home for $100,000 and it is now worth $500,000 and you made $50,000 of improvements. The most mortgage interest you can deduct is on a loan balance of $250,000; which could include any combination of your primary mortgage and one or more HELOCs.  (For example, if the main mortgage is paid off you could have up to $250,000 of HELOC. If the main mortgage balance is $40,000, you could deduct interest on up to $210,000 of HELOC.)

I'm not aware of any limits on deducting the interest as a rental expense, so that is probably the better way to go.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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