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Level 1

Use HELOC from my primary house to buy a rental property. Shall I deduct the HELOC interest as primary home mortgage interest or as expense for the rental property?

 
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Level 1

Use HELOC from my primary house to buy a rental property. Shall I deduct the HELOC interest as primary home mortgage interest or as expense for the rental property?

When you borrow funds, the funds and related interest are traced to activities that utilized the funds  within 30 days of the borrowing. In your case, all your borrowings on the HELOC were used to acquire   rental property. Therefore, the interest paid on the debt could be considered passive activity interest  or alternatively you could treat it as home mortgage interest within the $100,000 limitation or a  combination thereof.

If treated as passive activity debt, the interest is deductible against the rental income produced by the acquired property. The limitation of $100,000 on home equity debt does not apply, as the debt incurred for personal purposes.

If you use part of the HELOC for personal purposes, that interest would be allocated to home mortgage interest on Schedule A within the $100,000 limitation.

Home Equity Debt  

http://www.irs.gov/publications/p936/ar02.html#en_US_2016_publink1000230008 

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Level 1

Use HELOC from my primary house to buy a rental property. Shall I deduct the HELOC interest as primary home mortgage interest or as expense for the rental property?

When you borrow funds, the funds and related interest are traced to activities that utilized the funds  within 30 days of the borrowing. In your case, all your borrowings on the HELOC were used to acquire   rental property. Therefore, the interest paid on the debt could be considered passive activity interest  or alternatively you could treat it as home mortgage interest within the $100,000 limitation or a  combination thereof.

If treated as passive activity debt, the interest is deductible against the rental income produced by the acquired property. The limitation of $100,000 on home equity debt does not apply, as the debt incurred for personal purposes.

If you use part of the HELOC for personal purposes, that interest would be allocated to home mortgage interest on Schedule A within the $100,000 limitation.

Home Equity Debt  

http://www.irs.gov/publications/p936/ar02.html#en_US_2016_publink1000230008 

Level 1

Use HELOC from my primary house to buy a rental property. Shall I deduct the HELOC interest as primary home mortgage interest or as expense for the rental property?

Does anyone know how this will play out with the new tax laws?
Level 1

Use HELOC from my primary house to buy a rental property. Shall I deduct the HELOC interest as primary home mortgage interest or as expense for the rental property?

bumping Dan126's comment
Level 1

Use HELOC from my primary house to buy a rental property. Shall I deduct the HELOC interest as primary home mortgage interest or as expense for the rental property?

if you are not filing a Schedule A you probably would want to deduct against rental income. Anyone know where to enter that in Turbo Tax?