Is interest from primary residence HELOC used to payoff rental property mortgage be deductible as a rental expense

[Helen_530]

I'm planning to take out a HELOC from my primary residence to payoff my rental property mortgage.  Will i be able to deduct the interest as a rental expense on Schedule E, even though HELOC was secured by my primary residence?

[VictoriaD75]

No. Beginning in 2018, interest on a home equity loan or line of credit is only deductible if the loan was used to "buy, build or substantially improve" the home that secures the loan. You cannot deduct interest on a loan used to purchase or pay off a second home.

Home Equity Interest

[Critter]

Yes you can on the Sch E due to the tracing rules. 

[daystar35]

Hello, I have a situation where a client wants to re-fi his pure rental property using his personal residence HELOC loan. That interest is a lot lower.  Under traceability that would let him deduct it on Sched E ( I think)

but the rental is not securing the HELOC.  That makes it a skewed situation  but may be allowable.

I dont see a clear discussion on this in the Code.

I hate to tell him yes , than later on IRS disallows and it won't be able to deduct it on personal Sched A because

he didn't spend it to improve his personal residence.

Thanks in advance for any input here. 

[daystar35]

Hello, I have a situation where a client wants to re-fi his pure rental property using his personal residence HELOC loan. That interest is a lot lower.  Under traceability that would let him deduct it on Sched E ( I think)

but the rental is not securing the HELOC.  That makes it a skewed situation  but may be allowable.

I dont see a clear discussion on this in the Code.

I hate to tell him yes , than later on IRS disallows and it won't be able to deduct it on personal Sched A because

he didn't spend it to improve his personal residence.

Thanks in advance for any input here. 

[daystar35]

Hello, I have a situation where a client wants to re-fi his pure rental property using his personal residence HELOC loan. That interest is a lot lower.  Under traceability that would let him deduct it on Sched E ( I think)

but the rental is not securing the HELOC.  That makes it a skewed situation  but may be allowable.

I dont see a clear discussion on this in the Code.

I hate to tell him yes , than later on IRS disallows and it won't be able to deduct it on personal Sched A because

he didn't spend it to improve his personal residence.

Thanks in advance for any input here. 

[ReneeM7122]

Yes, it is possible to use a HELOC from a personal residence to improve a rental property.  If you use the proceeds from a home equity loan to buy a rental property, operate a business, or for some other type of investment. the interest will not be deductible.

The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.

Normally, with home acquisition and home equity debt, the interest can  can be deducted up to $1 million in home acquisition debt plus another $100,000 in home equity debt, for a maximum of $1.1 million combined for a couple, or $550,000 for a single filer.  You cannot use Schedule E to deduct the interest from a personal home equity loan as a business expense on rental property.  The taxpayer simply would not be allowed to deduct the interest.

@daystar35