Equity Home Loans

Is interest paid for home equity loans and used for investment property deductible?

Public Comments

1. Check with your tax advisor, but usually the interest for home equity loans (depending of course on the type of loan) is not deducted from income tax. However, it will reduce any capital gains tax you may have to pay on the investment property.
2. Yes it is, assuming that you can secure a home equity loan for the purpose of buying other property. Usually, you can only take out home equity loans to improve the property you are taking the loan against. But, people lie all the time to banks.
3. The interest will be deductible. I am assuming the property will be a rental property. If it is not, and is held for its appreciation (like raw land) the interest will be limited to your investment income.
4. There are 2 options for you. One, provide that you itemize your deductions, you can deduct home equity interest on a loan amount of up to $100K regardless of how the funds are used on Schedule A. Also, you can deduct the interest as an expense against investment income on schedule E or on business entity return of your choice (Partnership, LLC, Corp).
5. Interest on investment property is deductible against the income from the investment property. A home equity loan on your primary residence (subject to certain limits) is deductible regardless of how the money is used. I would expect you to get a better deal with a loan secured by the investment property that with a home equity loan.
6. Interest for home equity loans are only tax deductible up to the original purchase price of your property unless they increase the value of the property. Example: 10 years ago you purchased your home for $100,000. The interest on any loans that total $100,000 will be deduct able on your federal taxes unless you use the loan proceeds to add to the property.
7. Yes!