Deducting interest from HELOC to finance projects?

[Garen T.]

Hi

I have properties that I will take HELOC loans out on in order to finance the next property. It will be for construction, or acquisition, or fixing it up.

However, this year my accountant just told me that the interest on a HELOC is only deductible if the loan is used on the exact same property that is secured by the loan. I can't deduct the interest on a HELOC on property 1, to fix up or improve property 2. I've read some articles on this, and it appears to be accurate. If I take a HELOC, I can only deduct interest if I use the money to improve the property that is secured by the HELOC.

I would like to be able to use a HELOC loan similar to any other sort of business financing I can obtain. If I use credit in any way, I can write the interest off as a valid expense. If I buy a car for business, and finance the loan, the interest I pay the bank is a valid business expense. If I take out of small business loan, the interest is a valid business expense. If I take out a HELOC on an existing property to improve, build, secure another, I can NOT deduct that interest.

I read many articles on biggerpockets about using HELOC as a means to secure or improve properties, but can that interest be a deducted as a valid expense? How?

[Natalie Kolodij]

Your accountant is dead wrong and doesn't understand IRS interest tracing rules. § 1.163-8T