Is my HELOC interest deductible for 2018?

Question

I am sure this was probably answered somewhere on this forum, but I was unable to find it.

I took out a HELOC for $51K, and have payed IO payment on it during all of 2018. Not sure exactly what I used this money for, since I had cash in several accounts and didn't specifically earmark this $51K for any specific investment. I know I didn't improve/CapEx in my own home (I rent where I live). But I did use it for investment purposes - such as investing in a property or an apartment syndication. Is this interest deductible on my 2018 taxes. Thanks for taking your Friday (and weekend) to answer my question!

Lance Lvovsky · Answer

@Andrey Y.

Interest needs to be traced to determine deductibility. Under interest tracing rules if used for business or investment then deductible.

Russell Roberts · Answer

I also discovered a great podcast and blog post on this topic.

Who Said All HELOC Interest Is No Longer Tax Deductible?

Who Said You Can’t Deduct HELOC Interest? – Interest Tracing Explained

Michael Plaks · Answer

RE Pro will not help you with syndication losses. It's for properties you "materially participate" in, like your own rentals.

Andrey Y. · Answer

Gotcha, thanks! Can't wait to go part time in medicine soon, maybe work a few 1099 locums 3-4 months out of the year, and nab that "real estate professional" designation :)

Lots of paper losses on syndications now that I feel like I'm not able to write much of them against my person income.

Still pretty confused on how the 'passive loss limitation' is phased out from $100K to $150K in AGI. This is probably becoming too much for me to tackle on my own. I do my best though ;)

Michael Plaks · Answer

Syndication-related interest won't help you because you do not itemize your personal deductions.

Andrey Y. · Answer

Where were you yesterday before I submitted my H&R Block taxes? ;)

Andrey Y. · Answer

I actually wired $50,000 of the $51K to invest in a syndication. Would this count similarly to purchasing an investment property if I made it traceable?

it might be too late since I just submitted my 2018 taxes and the return was accepted. I guess if it was worth it I could ask for an amendment.

I have many syndication investments but all of them have been reporting pretty large paper losses, likely due to cost segregation in the first couple of years.

Michael Plaks · Answer

@Andrey Y.

Since you rent, you probably will not be able to itemize your personal deductions. That kills a deduction against syndication K1 income.

Your only hope is a partial deduction against your investment property. This would require you to show money trail. Example: $51k got deposited into XXX account. Then 1/3 of it, $17k, was wired to the title company for purchasing YYY property. Then you can deduct 1/3 of the interest you paid against that property.

If your $51k was dissipated without careful tracking - then SOL, izvini.

Brit F. · Answer

I edited your sentence above :) The answer is 'from your records'.  If you don't have the records to back up your deduction, best not to claim it.

Andrey Y. · Answer

Hmm.. I guess likely not then. How could one tell what money was used for what thing? It's all a mess of digits on a screen ;) Not really tangible or concrete stuff here..

Is my HELOC interest deductible for 2018?

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