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Financial Planning / Tax Strategies


Subject:  Re: Rental Condo Tax Issues Date:  4/21/2003  1:34 PM
Author:  geocarw Number:  65129 of 132661


Uh...not quite. If you were using the HELOC for personal purposes (ie, not for financing the rental property or other investment or business purposes) you could only deduct the interest on up to $100,000 of principal you borrowed. This maximum would be reduced by any primary mortgage principal balance in excess of acquisition debt. See the ordering rules and limits in IRS Pub. 936, Home Mortgage Interest Deduction.

Pub 936...glazed eyes, again... please bear with me on this. An example: Rental condo $100k, first mortgage $80k, 20% down payment in the form of a $20k HELOC plus capitalized closing costs $1,150. After closing we would have a $21,150 HELOC mortgage/loan all related to the acquisition of the rental condo.

Given this example, all of the interest on the HELOC would be deductible on Sch E for the condo, correct?

Interest on future draws on the HELOC for condo related expenses (e.g., repairs, improvements, etc.) would also be deductible, correct?

Interest on future draws on the HELOC for personal purposes would NOT be deductible, correct?

As long as we do not exceed the $100,000 limitation, no problem, correct?

Thanks for your patience

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