Deduct HELOC Interests?

[Arthur C.]

Question for you all in this community, can you deduct interest paid out of HELOC, which the funds were used to buy a rental property? It is my understanding under the new law, HELOC interests are not deductible for anything other than to "buy, build, or substantially improve the taxpayer's home that secures the loan".

In other words, you cannot deduct interests if you use HELOC funds for anything related to personal or to buy a rental property or even to rehab a property other than your property that is associated with the HELOC.

I come across one reputable site saying otherwise.

https://www.therealestatecpa.com/blog/who-said-you-cant-deduct-heloc-interest-interest-tracing-explained

[Natalie Kolodij]

Originally posted by @Arthur C.:

@Kyle J. Thanks.

Looks like you are correct. I asked that same question in other forum and one CPA stepped in and confirmed that it can be deductible. However, in my case, it won’t be deductible because I have no rental income produced yet and it has to be available for rent. Currently, I am going through eviction process (former owner still living in it) and I will start the rehab process once evicted and clear so it won’t be ready to rent out till in 2020.

Appreciate you stepping in and provided your inputs.

 It would still be deductible. It was used for a business purpose. Also- if you're going through an eviction it's in service. At this point expenses you incur are deductible-  income doesn't determine it being in service. 

It's being used as a rental- you're actively trying to have it be in service as an income producing rental. 

And if it was not in service yet you would still get to capitalize that interest and deduct it with the basis. 

I would recommend consulting with a tax professional to make sure you're not missing out on deductions.