Deducting interest from business line of credit

Deducting interest from business line of credit

Member since 2008 · 21 posts · 4 votes

I recently bought a property for cash. I sourced some of the cash used for this deal form my business line of credit.

My business line of credit is NOT linked to my real estate business. The LOC is for another business I have which deals with cars.

Can I deduct the interest payments I have made to this LOC even though the LOC is linked to a clearly non RE business?

Thanks,

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  • Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
    19y

    1. You likely should get professional tax advice.

    2. My view based on similar transactions.

    Create a loan from the car business to the RE business. Then have the RE business deduct the interest payments following the regulations. The car business will record the income but also has interest expenses as the funds came from an LOC.

    You really want to keep the two business separate and when ever they do a deals between themselves document it correctly. Pretend that two strangers were doing the deal and document the same as you would in that situation.

    John Corey

  • Accountant · Newtown, CT · Member since 2008 · 123 posts · 34 votes
    19y

    REI is correct here. You would have a deduction and payment of the LOC and interest related to it paid by the real estate company and paid to the car dealer. The car dealer will show income for the interest received and an offset for interest expense as it makes the payment to the LOC.

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