Tax Deductible for HELOC from an Investment Property

[Jeff Smith]

Hi BP friends,

I applied for a HELOC on my investment property, and I'd like to use it as contingency fund when I need to invest in another investment property in future. May I know if the interests from that HELOC is tax deductible? Can I just group the HELOC interest together with mortgage interest in that investment property?

I applied for HELOC on my investment property is because

(1) I have more equity in this investment property than my primary residence, and 

(2) due to recent change in tax law, HELOC from primary residence is only deductible when it's used for home improvement on that property, and I can't use it for other investment.

Thus I opted for HELOC on my investment property for my next deal, and get HELOC interest tax deductible on that investment property.

Is my strategy above makes sense? Welcome any suggestions as I'm preparing for my next investment deal. Thanks so much.

[Ashish Acharya]

Originally posted by @Jeff Smith:

Hi BP friends,

I applied for a HELOC on my investment property, and I'd like to use it as contingency fund when I need to invest in another investment property in future. May I know if the interests from that HELOC is tax deductible? Can I just group the HELOC interest together with mortgage interest in that investment property?

I applied for HELOC on my investment property is because

(1) I have more equity in this investment property than my primary residence, and 

(2) due to recent change in tax law, HELOC from primary residence is only deductible when it's used for home improvement on that property, and I can't use it for other investment.

Thus I opted for HELOC on my investment property for my next deal, and get HELOC interest tax deductible on that investment property.

Is my strategy above makes sense? Welcome any suggestions as I'm preparing for my next investment deal. Thanks so much.

If you had used the HELOC from primary residence to fund the investment property, the interest would still be deductible. Tax reform did change the personal use aspect of it, but the proceeds used for business/Investment activities are still deductible.

With the same notion, yes the entire interest is deductible from the LOC when you use the entire fund to purchase next investment property. If you use a portion of the fund, a portion of the interest would be deductible. The interest is deductible at the new property level, not at the investment property that you took out your LOC

Look Like you do your own research. Look for interest tracing rules.