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.
Yes, the interest from any loan used to purchase rental property will be deductible as a rental expense.
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">https://www.irs.gov/newsroom/interest-on-home-equity-loans-often-still-deductible-under-new-law</a>
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.
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.
Amen ... with the new laws the IRS may question it so be ready to prove the loan was used for the rental property.
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?
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.
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.
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?
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.
@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)).
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?
Correct ... the employee business expense deduction has been nixed starting in 2018. All the rental income & expenses go on the Sch E only.
It can only be entered as a rental expense.
If the rental expenses exceed rental income, your rental has a loss. In SOME cases that loss can offset your income from your job, but in other cases that loss is suspended until either (a) you have rental profit (or other passive income) or (b) you sell the property.
In other words, that rental interest expense will eventually be able to used (even offsetting your job income).
Hi. I saw the following information on "On Demand Tax Guidance (Turbo Tax premier, 2017)" in the Rental Expense section (Schedule E). Based on the wording below, it looks like the HELOC has to be secured against the equity in the rental property. I want to have a HELOC secured against my primary property and use to purchase and maintain a rental property. Can I still do that?
---Wording--
Report Mortgage Interest
Enter the mortgage interest shown on Form(s) 1098 issued with your name and your Social Security number.
You may have more than one Form 1098, from different lenders, if you refinanced your first mortgage, or your mortgage was sold.
Include any interest from an equity loan or home equity line of credit (HELOC) secured on this property.
What is a home equity line of credit (HELOC)?
A home equity line of credit is a type of second mortgage that allows you to borrow against the equity in your rental property. You use the credit card or checkbook provided with the line of credit to purchase items as needed for your rental.
It does NOT need to be secured against that rental property. I pointed out the legal things in my previous comment.
There are countless omissions, errors, and improper wording in the "On Demand Tax Guidance" things in TurboTax.
I am in this same situation but with an added twist. The rental property was purchased in 2022 with HELOC on my primary residence. The property is not available for rent until 2023. Since I cannot file Schedule E until 2023 can I deduct the interest from 2022 on Schedule E in 2023 taxes, do I lose it or is there some way to deduct on 2022 taxes?