We loaned my husband's business $5557.00 to purchase and build a CNC Bridgemill. Where do I show this on these forms? Also, can the interest be handled as an expense?

[Hal_Al]

What kind of business, sole proprietorship (schedule C) or something else?

[kadickey1]

sole proprietorship

[kadickey1]

we actually borrowed the money from our HELOC for this... does this change anything?

[TomYoung · Accepted solution]

In this situation there's no distinction between "you" and your Schedule C "business".  That is, you're not separate taxpayers; the Schedule C is simply reporting some income of "yours" - your business income - just like Schedule B reports your interest and dividend income.  So if you simply pulled some money out of your bank account and bought the CNC Bridgemill you don't report interest expense on Schedule C because "you" have no interest expense.

If, on the other hand, you borrowed that money to buy that piece of equipment then that's legitimate business interest.

Tom Young

[kadickey1]

Thanks so much for your help.

[SweetieJean]

@TomYoung Even if the funds came from a HELOC, as OP indicated?

[TomYoung]

I assume you're questioning the "legitimate business expense" statement?

If you can clearly trace the borrowed money to the purchase then that's deductible business interest.

[SweetieJean]

Actually, I was referring to the provision that a HELOC must be used to "to buy, build or substantially improve the taxpayer’s home that secures the loan."

[TomYoung]

I'm not sure where that quotation is coming from, though it sounds like a qualification for interest to be deductible as mortgage interest.  But money borrowed via a HELOC can still be deductible as business interest if that money is put to that use.

[SweetieJean]

<a rel="nofollow" target="_blank" href="https://www.irs.gov/newsroom/interest-on-home-equity-loans-often-still-deductible-under-new-law">htt...>

[TomYoung]

I'll have to look further, later.  

The wording suggests that interest on any amount borrowed under a HELOC that isn't an acquisition loan simply isn't deductible, period, in contrast to previous law that allowed a "mortgage interest" deduction on up to $100,000 of an equity line even if that didn't constitute an acquisition loan.  But I'm not sure that's literally true.  I believe the allocation rules are still in effect but I'll have to check to make sure.

[Stinkerbellkity]

My understanding is that interest on any money used for the business is a deductible business expense.  If the interest were taken as a mortgage loan interest and invested elsewhere, ti would be an addback to AMT, so not benefit to the borrower.

[TaxGuyBill]

I agree with Tom.  The "tracing rules" still apply, so if/where the deduction is allowed depends on what it is spent on.

[VolvoGirl]

You technically didn’t do a “loan” unless you got a loan from the bank or somewhere else. You just moved the money between your accounts. You just Expense or Depreciate the things you bought with it. Doesn’t matter which account or credit card the money came from.