Used heloc for down payment. Is the interest tax deductible

[Chalachew Mengistu]

Hello BP family,

I have used my heloc, backed by my RESIDENTIAL property, to buy a rental investment property. I'm doing income and expense for this rental property for 2020 taxes. Is the interest paid on the heloc deductible towards the rental property's.

Thank you, 

[Michael Plaks]

@Greg M.

There're two kinds of interest: personal and business/investment. The Trump tax reform indeed changed the rules for deductibility of HELOC as a personal interest, as you correctly pointed out.

However, it did not change any rule related to the deductibility of business/investment interest, as @Matt Devincenzo correctly pointed out. You can still fully deduct business/investment interest regardless of the source of the borrowed funds and regardless of collateral. 

It could be a traditional secured mortgage, a HELOC, a credit card debt, an unsecured personal loan, a life insurance loan - all of that interest is fully deductible against a rental property as long as it is clearly connected to such property.