tax deductible interest - yes or no?

[Andrew S.]

Hi,
I'm getting conflicting advice from two CPAs and was wondering if anyone cares to chime in. Here is the situation. My primary residence is paid off and I want to tap into the equity in order to acquire rental real estate. I'm subject to AMT provisions clawing back regular mortgage (and HELOC) interest deductions. One CPA tells me that if I tap my HELOC for INVESTMENT purposes, then I will be able to deduct the interest as long as I comply with certain tracing rules set forth by the IRS. My other CPA says that it doesn't matter what I use the cash for - what matters for tax (ATM clawback) purposes is the collateral, which in my case is the primary residence and therefore, that interest would NOT be deductible for me.
Who is right?
Thanks for any insights into this rather puzzling (to me) issue!

[Steven Hamilton II]

A Spalten,

Yes, you could deduct the interest on Schedule E as long as you follow the tracing rules.

-Steven