Rental Property Investor · Navarre, FL · Member since 2019 · 913 posts · 640 votes
Hello BP, I have this question.
I'm looking to potentially obtain a commercial line of credit with an interest rate of 5%, per the bank. I would be getting it against one of my rentals which is owned outright. This is as an alternative to refinancing it with cash out, at similar (maybe 4.5%) rate. So the commercial line of credit has so far 2 things going for it - an alternative to refinance and therefore closing costs, and competitive interest rate.
Now supposing I got the line of credit for say $100K and over the course of a year paid $5000 in interest, is that interest treated the same way as mortgage interest?
I did search the forums a little, but went down too many squirrel holes before I gave up. I appreciate anyone's answer.
Are you asking if that interest payment is tax deductible? I would think that if you set up your ownership of the house as a business entity and are taking a commercial line of credit then yes, it would be deductible as a business expense. From my understanding the interest on a HELOC's on your primary residence is not tax deductible, but since this other home is an investment it should be. I am NOT a CPA though, so obviously cross-check my info.
I've used a line of credit on one of my properties and it acts close to the normal primary home equity HELOC. You will on pay interest on the amount you use. If you don't draw it, you don't pay interest. This is how the one I used worked for me. A lot more convenient that re-fi, my bank paid all fees when I set up my LOC. Hope this helps and good luck.
Are you asking if that interest payment is tax deductible? I would think that if you set up your ownership of the house as a business entity and are taking a commercial line of credit then yes, it would be deductible as a business expense. From my understanding the interest on a HELOC's on your primary residence is not tax deductible, but since this other home is an investment it should be. I am NOT a CPA though, so obviously cross-check my info.
Gents thank you for you replies! I do agree that it would be tax deductible since it is a legit business expense. I'm not sure I'll walk down that road yet.
@Michael King I see you have some responses above but there is an entirely separate "tax" forum for these types of questions. Just a thought to post there too if you would like.
@Michael King I see you have some responses above but there is an entirely separate "tax" forum for these types of questions. Just a thought to post there too if you would like.
Thank you Andrew, much appreciated! Right now I may be getting the loan with a commercial lender here in St. Louis, and it will be for a mortgage so for the moment, the question is a moot point. Thanks again!
You have to follow the interest tracing rules to determine its deductibility. if the funds are used for a business, real estate investment, then it may be potentially deductible.
If its used for personal items, it would not be deductible.