Borrow to invest in crowdfunding REI - interest deductible?

[DA Nguyen]

I'm looking to withdraw a small amount out of my HELOC to invest in a few crowdfunding deals. I believe income from crowdfunding deals (regardless of whether it's debt, preferred equity or equity) is considered passive income. So does that mean that I can deduct the interest on my HELOC against income from these deals? As opposed to, the interest being considered investment interest and I have to itemize?

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Investments on the EQUITYMULTIPLE platform (and on many investing platforms) are structured as "pass-through entities" (specifically, we establish a distinct LLC for each investment on the platform). Since the earnings from these pass-throughs is classified as passive, it is taxed separately from regular investment income (portfolio income). This has three implications:

1. Income from these investments is taxed at your ordinary marginal tax rate.
2. Any losses can be used to offset other passive (and only passive) income, thereby lowering your overall tax liability. Conversely, portfolio losses cannot offset passive gains/income, and vice versa.
3. Profits from passive activity is not subject to self-employment tax.