Tax Benefits Using Debt - Real Estate

[Account Closed]

I have purchased a rental property recently and decided to use my line of credit at 6.85% (instead of cash) to pay for the closing costs including the down payment because as I understand it the interest is tax deductible. Is this the right choice, should I make interest only payments, and when if ever should I pay the credit line off? 

Thanks so much!

[Chris Habets]

Hi Jordan,

Interest on loans used for investment properties is tax deductible - ideally you keep separate LoC for investment expenses. This makes the accounting easier.

But tax-deductible isn't necessarily that end of the equation - if you have money sitting around doing nothing, than it is worthwhile to pay-off the LoC. I always assume I get 25%-30% back on tax-deductible things, so you're still paying 70%-75% of the cost out of pocket.