Use a home mortage to finance an LLC

[Mike S.]

I am looking to inject (contribute) some money into one of my LLC to finance some new acquisition this year.

I am refinancing my home (that is under my own name) and will use the cash out as contribution into the LLC.

It is my understanding that while you can't deduct new mortgage or refi anymore on your personal home, you can still deduct all its costs when it is used for investment (by deducting from the investment income/gain).

What would be the proper way to document this transaction in addition to the schedule recording the contribution in the LLC book?

Should the LLC take over all the payment of the mortgage directly? Should the LLC pay me for the monthly payment and record the interest as expense and the principal as distribution?

In the same token, how to expense the closing cost, appraisal, points, ...?

Can I also expense the additional insurances required by the lender?

Or should I loan the money to the LLC mirroring the same conditions as my lender? But then I would have to pay income taxes on the interest received without being able to deduct the interest paid?

[Ashish Acharya]

@Mike S. , 

Refinancing makes it more complicated compared to HELOC. Loan cost, partial amortization of the Loan cost and all the stuff.

I like HELOC because

•  you dont incur interest until you actually use the money. Refinancing, you will pay interest as soon as you refinance. 
• Also, if you refi, most likely you are going to pay the higher rate on the entire loan balance vs HELOC you pay the higher rate on the new loan.

HELOC are very easy. It makes deducting interest very easy as well.

From a Tax perspective, If the LLC is single member LLC, it is very straightforward. The interest that you pay personally can be deducted as the interest expense in your personal TR as business expense per interest tracing rule even if you pay for it and loan is in your name. This is becuase for tax, SMLLC has disregarded entity.

Legally(talk to an attorney on this), you might want to have a debt agreement between you and LLC to loan money from you to LLC. If not, you are basically comingling the personal asset(Its your loan, not LLCs) with the LLC's asset and that defeats the purpose of having the LLC.

If you do debt agreement, LLC will have an interest expense and you will have an interest income. Its a wash.

The interest that you pay the bank can also be deducted as investment interest expense if you itemize. 

Also, I dont think your bank will give HELOC to you LLC. You can ask, but unlikely.