Under the new tax plan, can I still deduct HELOC interest if I take out a HELOC on my primary home to help purchase a rental property?

[Carl]

Use of secured funds to purchase rental property is not affected by the new tax law. So yes. You could have a secured loan for a trillion dollars to purchase business property (which is what rental property is) and 100% of the interest is deductible as a business expenses.

[TaxGuyBill]

Yes, the interest from any loan used to purchase rental property will be deductible as a rental expense.

[senoraschultz]

Great, thank you! My concern was because the new tax plan makes HELOC interest not deductible “unless they are used to buy, build or substantially improve the taxpayer’s home THAT SECURES THE LOAN.” (Emphasis mine) <a rel="nofollow" target="_blank" href="https://www.irs.gov/newsroom/interest-on-home-equity-loans-often-still-deductible-under-new-law">htt...>

[TaxGuyBill]

That is talking about the interest deduction for your personal residence.  That has the requirement of being secured by that home (and that rule about being secured by that home has always been there).

Rentals and businesses do not have that requirement.

[Carl]

Just be sure that every single penny of the HELOC is used for the rental, and be able to prove it. Remember the three golden rules when dealing with the IRS:
1) You are guilty until proven innocent.
2) The burden of proof is on the accused (that's you!) and not the accuser.
3) If it's not in writing, then it did not occur.

[Critter]

Amen ... with the new laws the IRS may question it so be ready to prove the loan was used for the rental property.

[senoraschultz]

Wait TaxGuyBill are you saying I can’t take a personal deduction on primary home HELOC interest if I use it to purchase a rental property?

[TaxGuyBill]

It would not be a deduction for personal interest on your Itemized Deductions on Schedule A.

It WILL be a deduction for rental interest as a rental expense on Schedule E.

[Carl]

No. TGBill is not saying that. He is saying that the rule you referenced has nothing to do with rental property and does not apply in your specific and explicit case.

[jackharrisnc]

Hi TaxGuyBill.  This is great news.  Can you or anyone in this string of comments provide the IRS rule stating that the the interest on a HELOC taken out on the primary home to purchase rental property is deductable?

[Carl]

The IRS rule does not exist yet, because they haven't released the publication as of this date. The interpretation of the law is based on the house resolution that was passed by congress and signed into law by the President.
Basically, when you get the 1098 - Mortgage Interest Statement for the HELOC, you will report/enter that 1098 in the Rental Expenses section where it specifically ask if you have a 1098 to report. Even if you don't get a 1098, you will still enter it in the same place "as if" you did receive a 1098 for the property.

[TaxGuyBill]

@jackharrisnc   The new laws did not change anything in that regards, so the same rules apply:  Whatever the money was used for, that is where any potential deduction will be.  That is based on the "tracing rules" in Regulation 1.163-8T (and an election based on §1.163-10T(o)).

[wondernj]

Mortgage/HELOC interest on a rental property is only deductible against income from that rental property though, right? We can't take it as a deduction against income from our primary employment?

[Critter]

Correct ... the employee business expense deduction has been nixed starting in 2018.   All the rental income & expenses go on the Sch E only.