%downpayment to house for tax benefit

[jackkgan]

I request your advice for 2 questions below and welcome any other advice you may have about them:

I currently live in Chicago and plan to buy a house in Bay Area which I may rent out  (more as investment property) as it is close to my parent's place and they can help me manage it. 

1. I can pay the entire amount with cash. But I understand that I may have tax benefit by taking a loan for some of it. I request your advice on % or amount of loan would help me maximize the tax benefit. 

2. I moved from New York to Chicago in July but have not lived in California in 2025 nor plan to move there this year. I work remotely 100%. I plan to file my 2025 taxes for 2 states as non-resident of New York, domicile and  resident of Chicago Would buying this investment property in California be considered as domicile of CA ? Thank you!

[Bsch4477]

Having investment property in California does not make your tax home in California.  The issue how you buy the property depends upon your financial situation and estate plans and while you can get suggestions from anonymous posters you might want to consult a financial planner. 

[Opus 17 · Accepted solution]

Here is an article about domicile.

https://accountinginsights.org/what-is-the-illinois-183-day-rule-for-tax-residency/

Here is California's web page.

https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html

Your domicile is determined by where you live most of the time and where you consider your permanent home to be.  Owning investment property in any particular place does not change your domicile.

However, if you are a non-resident of California, you will still owe California state income tax on any California-sourced income, such as a rental property in California (assuming you actually show a net profit, your goal is to show a loss).  You will need to file a CA nonresident return to report the rental property income and expenses, in addition to an Illinois return to report all your world-wide income (plus a part year resident for NY, at least for 2025).

Regarding mortgage, the interest you pay is a rental expense, but not the principal.  So you would not deduct anything for your down payment, but you can deduct the interest.  Ideally you want to have a positive cash flow but show zero taxable income or maybe a loss, by matching your rent to your expenses including depreciation.  However, the exact math is not something I can help with, you would want to talk to an experienced accountant who can look over the facts of your situation. 

Mortgage interest is not going to be deductible as an itemized deduction on schedule A unless this is your personal second home, meaning there are limitations on the number of days you could rent it out (I don't know the exact rules but someone else will).