HELOC or LOC on primary (tax deductible)?

4 Replies

Hi-

Hopefully I'm stating this correctly:

HELOC -> has closing costs and is the equity being pulled out of the house up to a % of what the lender will lend on the property (ie 60% or 75% LTV). If there is a 1st note already this is the 2nd, otherwise if property has no note, then HELOC is the 1st.

LOC -> no closing costs and credit is secured by the value of the property based on what amount the lender will lend. Still a little sketchy on this one as to how much.

Please enlighten if this is incorrect.

My question lends itself to getting money for purchase and rehab investment property. 

Hypothetical numbers: PropertyA can be purchased for $90k with needing $20k-30k rehab. 

  • Primary residence has 100% equity.
  • An existing investment property has 100% equity while another property has some equity and has a 1st note.

I'm told that "primary residences" are easier to process for getting the equity from and they have better interest rates rather than investment properties due to risk.

If either of these (heloc or loc) are used on a primary residence, is the interest tax deductible for the rental (SchE)?

Thanks

a LOC is a HELOC and there are typically no closing costs with this type of loan. Interest payments for the year are deductible. Interest rates for investment properties are typically higher, better to get the LOC while you are living at the property.

Originally posted by @Jassem A. :

a LOC is a HELOC and there are typically no closing costs with this type of loan. Interest payments for the year are deductible. Interest rates for investment properties are typically higher, better to get the LOC while you are living at the property.

Hi Jassem-

I don't plan on leaving my primary residence. I'm looking to leverage the best way from either my primary or one of my rentals (one has 100% equity and another has some but not 100%).

When you say "a LOC is a HELOC", what does that mean. Perhaps I stated them incorrectly. Would it be a Home Equity Loan -vs- a (Home Line of Credit or Line of Credit)?

I thought the use of HELOC meant Home Equity Line of Credit meaning it's a mortgage being taken out of the equity of the property. Verses a Line of Credit that is not a mortgage but rather a credit line given by the bank.

I think the LOC is probably how I want to handle this verses another "loan" that has more costs involved.

Are interest payments deductible whether it's taken on the primary or an investment property?

They're deductible in either instance. Sometimes the rate on the equity loans are less than the lines of credit, for a longer term, and also fixed.  The disadvantage is that you need to have plans of what you will do with all of the equity loan money.  Equity loans/lines also have little/no closing costs compared to a cash out refinance.