Originally posted by @William Wallace :
Hey, I was toying with the idea of using a HELOC to fund a non-real estate investment, specifically buying some debt. It seems to me that even in the perfect situation, where I get paid like 12% interest rate with no chance of default, and I get a HELOC with around 6% interest rate, I'm going to have to pay taxes on the interest I collect, but I cannot write off the interest I pay, and it will probably not be worth it. Am I correct on this?
You can write off the investment related interest even if it is funded by the Heloc.
But if you will take standard deduction, it doesn’t matter.
If your itemized deduction were greater than standard deduction (24k if married in 2018), you could deduct the interest you paid on the heloc to the extent of your net investment income.
Your net investment income is your gross investment income (less your fully deductible investment expense)
Your do not have to deduct miscellaneous investment expense from your investment income as tax reform took that deduction away.
Bottom line: you can deduct the interest if you itemize but limited to net investment income.
If this is confusing, happy to talk to You.