HELOC for rental downpayment

[Jen Wells]

Hi All,

Debating a HELOC on my primary residence to obtain funds for a downpayment for another rental property. Does anyone know if the heloc interest would be deductible under the new tax reform given this situation? Thanks!

[Brian Adzadi]

@Jen Wells

I am a subscriber to Clay Morris on Youtube. He is a pretty savvy investor that does turn key properties in the Midwest and South. He did a video called "Is a HELOC Still Tax Deductible?". It was a very informative video and the gist of video will answer your question, which is NO.

HELOCs are still tax deductible under the new tax law but only for capital improvements on your personal residence. Meaning if you take out a HELOC to fix up your own house, doing roof repairs, new HVAC, sidings etc. Yes the interest on that HELOC is deductible.

However, if you are trying to take out a HELOC against your own house to buy another house. NOT HAPPENING.

I am guessing the only way you can remotely come close to doing that is if you take out a HELOC to do a househack on multifamily house that you also plan on living in and going to do a major capital improvement on.

If you are 20-40 years of age and plan on continuing on working at your current job for the next 5 years, I would suggest you take out a loan from your 401K or retirement that plan to be used as a down payment on your next property. I suggest this because the loan does not show up on you FICO score and the payment will automatically be coming out of your paycheck. The only caveat is you need to pay it off within 5 years, and if you leave your job before you payback the whole loan, you will get penalized.