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Can I claim interest on a loan for down payment on rental property borrowed with my retirement as collateral if I'm also claiming interest on loan from mortgage company?

I received an annual tax and interest statement from the mortgage company but not from the company that handles my retirement account. I was able to figure the interest, though, from the down payment loan.

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Can I claim interest on a loan for down payment on rental property borrowed with my retirement as collateral if I'm also claiming interest on loan from mortgage company?

Unfortunately, you cannot deduct the interest on the loan from your retirement plan, as the plan funds themselves, not the home, are pledged as the collateral for that loan.

The following guidance on this matter is provided from IRS Pub. 936 Home Mortgage Interest Deduction:

"You can deduct your home mortgage interest only if your mortgage is a secured debt. A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that:

  • Makes your ownership in a qualified home security for payment of the debt, 
  • Provides, in case of default, that your home could satisfy the debt, and

  • Is recorded or is otherwise perfected under any state or local law that applies.

In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt." 

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Level 1

Can I claim interest on a loan for down payment on rental property borrowed with my retirement as collateral if I'm also claiming interest on loan from mortgage company?

Unfortunately, you cannot deduct the interest on the loan from your retirement plan, as the plan funds themselves, not the home, are pledged as the collateral for that loan.

The following guidance on this matter is provided from IRS Pub. 936 Home Mortgage Interest Deduction:

"You can deduct your home mortgage interest only if your mortgage is a secured debt. A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that:

  • Makes your ownership in a qualified home security for payment of the debt, 
  • Provides, in case of default, that your home could satisfy the debt, and

  • Is recorded or is otherwise perfected under any state or local law that applies.

In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt."