RE: Interest and Dividend Income Offset with Line of Credit Interest

[freddytax]

I read that you can offset interest and dividend income with interest paid on a personal line of credit loan.  To clarify, this is not a HELOC but a Schwab Pledged Assisted LoC or PAL.  The loan will be used to help purchase a home but not secure it, i.e., no mortgage involved.  Any help is greatly appreciated.

Thank you!

[DoninGA]

In most cases interest on a personal loan is not deductible on a tax return.

How did you use the proceeds from the loan?

[freddytax]

The proceeds will be used to help purchase a new home.  This is a bridge loan in that the proceeds from the sale of my current home will pay off the LoC loan.  But I'm trying to plan ahead.

[freddytax]

I found this on Experian:

You can't deduct an unsecured personal loan's interest on your taxes unless you use the loan's proceeds for one of the following purposes:

• Business expenses
• Qualified higher education expenses
• Taxable investments

[freddytax]

Since a home has property taxes would it qualify as a "taxable investment"?  I don't think this is some sort of loophole but it seems to make sense on the surface.

Also, the loan is secured by the assets in my Schwab account so it does not fit the UNsecured category.

[freddytax]

So I think where I've landed is that this is NOT a personal loan but a secured line of credit.  Both are very different IMHO.

[Mike9241]

to be qualified residence interest  (home acquisition debt) it must be secured by the residence. since this is not your situation it is not QRI/HAD. therefore the tracing rules of Temp Reg 163-8T are used to determine the deductibility of the interest.  You took out a HELOC and assuming the proceeds were deposited into your investment account, the interest incurred during the time loan proceeds are in the investment account would be investment interest. When the loan proceeds are withdrawn, the interest on the amount withdrawn is reallocated based on the use of the funds. Since it seems that withdrawals were used to pay for your residence, the interest on those amounts is personal interest and therefore not deductible as either residential interest, investment interest or any other type of interest expense.  

[freddytax]

Thank you!!