Used HELOC from Main house to buy first rental property.

[Eric Yu]

Hello BP community!

I recently used HELOC from my residence to purchase a rental house. Seller accept offer at 10/20, but it looks closing date will after 1/1/2019. Obviously, HELOC interest start from Nov., there are 2 month interest generated in 2018.

1. Can I use interest as a tax deduction on my personal tax return?

2. If not then how can I write off Heloc interesting from 2018 tax return?

[Ashish Acharya]

@Eric Yu , 

You are not wiring the fund until 1/1/19, right? If you dont use the HELOC fund, you dont pay interest for HELOC. So, if you have actually drawn the money out, you can pay it back and actually withdraw when you need it. That way you are not paying interest when you do not use it. Talk to your bank.

If you are not doing that, the interest is still considered used for the business/investment purpose as you had the correct intention and signed the contract, and It would be deductible to the extent of the net investment income(Interest, dividend ....) if you itemize deduct in your personal return. 

If you dont itemize on your personal return, you cannot deduct it, so it is better to pay it off until required to minimize the interest. 

You might also be able to add the interest to the basis of the property if you incurred the expense in process of buying the property(after you identified the property and your draw was necessary to show proof of fund to close the deal). This one needs more analysis and more detail to determine.