Skip to content
×
Pro Members Get
Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
ANNUAL Save 54%
$32.50 /mo
$390 billed annualy
MONTHLY
$69 /mo
billed monthly
7 day free trial. Cancel anytime
×
Take Your Forum Experience
to the Next Level
Create a free account and join over 3 million investors sharing
their journeys and helping each other succeed.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
Already a member?  Login here
Tax, SDIRAs & Cost Segregation
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated over 7 years ago on . Most recent reply presented by

User Stats

19
Posts
6
Votes
Chris K.
  • Investor
  • Charlottesville, VA
6
Votes |
19
Posts

Tax Advantage for using HELOC on Investment property

Chris K.
  • Investor
  • Charlottesville, VA
Posted
So, I scoured the forms, and I couldn't find anything on this. I would appreciate any thoughts you guys could share. My thesis is: for certain individuals interested in buy and hold, it could make more financial sense to use a HELOC for a greater part of your financing strategy, due to tax consequences. So, I'm under contract on an investment property (my 2nd!) and we are heading towards closing. I plan to have a 30-year mortgage for 75% of the value, and then I'm considering using a HELOC from my primary residence as the downpayment (or I might use cash). I have a traditional full time job with a W-2. Due to my adjusted gross income, I am not allowed to deduct my passive activity losses against that income, and I am not otherwise a "real estate professional." So, if my passive activity losses are greater than my passive income (and they will be due to depreciation), I have to carryover any and all loss until I dispose of the property, which could be a very long time since I plan to buy and hold. But, here's the interesting thing -- for the HELOC on my primary residence used to help purchase the property -- the interest paid on the HELOC IS deductible against W-2 income, even if used that on for an investment property, and regardless of passive activity loss rules. So, putting aside the variable nature of the HELOC interest vs. a mortgage, wouldn't it make sense to stretch the HELOC to as far as you comfortably could so that you create a situation such that the Interest is deductible against your W-2 income? I understand this situation would apply only to people who can't deduct passive activity losses against their regular income, but I have to imagine that's a very large group on Bigger Pockets. And also, I'll disclaim for you -- I understand any and all responses are not advice, and you recommend I seek a tax professional.

Most Popular Reply

User Stats

1,561
Posts
2,285
Votes
Brandon Hall
  • CPA
  • Raleigh, NC
2,285
Votes |
1,561
Posts
Brandon Hall
  • CPA
  • Raleigh, NC
Replied

@Chris K. debt tracing rules come into play. Interest is deductible where funds are utilized.

If you take a HELOC and buy investment property, funds are deducted on Schedule E. If you take a HELOC and start a business, funds are deducted on Schedule C.

https://www.biggerpockets.com/renewsblog/2016/01/25/deducting-interest-home-equity-line-credit/

Loading replies...