Rental Property Investor · Green Bay, WI · Member since 2017 · 50 posts · 7 votes
Hello, I live in Green Bay full time and recently bought a short term vaca rental condo in Nashville where I have a property management company run it. For me to swing the down payment I took some money out of my life insurance. Am I able to write off that life insurance interest on taxes since it went directly to my down payment on a investment property that I don't occupy? Thanks!
Scranton, PA · Member since 2017 · 168 posts · 137 votes
7y
Usually in this kind of case you want to take a loan out on the policy instead of cashing it out. Loans are generally tax deductible. I’m not a CPA, but from the sounds of it you’ll initially owe on the distribution and write it off as standard depreciation.
Rental Property Investor · Green Bay, WI · Member since 2017 · 50 posts · 7 votes
7y
@Zachary Paschke Thanks for the reply! I did technically take a loan out on my life insurance and am paying 8% interest on it. Sounds like I’ll be writing that interest off on my taxes!
Scranton, PA · Member since 2017 · 168 posts · 137 votes
7y
@Kyle Seidel. Sounds good you did it right! If the complete reason for the loan is business, then it’ll be like a traditional loan for business. 8% is pretty aggressive. Good luck with the rental!
Financial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votes
7y
The interest on policy loans is not tax deductible.
I know some investors that write it off anyway, but that is their business. Using a policy loan to make the down payment is great because it allows you to get a property with zero cash out of pocket. A policy loan is great for this because it doesn't show up on your credit. Most of my clients just eat the interest. The mortgage interest will get the tax deduction.
You can look at getting a cash value line of credit from a bank. You may be able to refi out of that 8% policy loan with a loan at prime. The CVLOC interest may be tax deductible.
Rental Property Investor · Green Bay, WI · Member since 2017 · 50 posts · 7 votes
7y
Thanks @Zachary Paschke! @Thomas Rutkowski Even if I took out a loan on my life insurance which strictly went to help finance my down payment on an investment property it's not tax deductible? I agree that using life insurance is a great tool to help get properties quicker- without this option I wouldn't be able to have done this until next year. Glad to see a fellow Packer fan- hoping to make it to one of their public practices here asap!
New York City · Member since 2018 · 161 posts · 75 votes
6y
@Kyle Seidel You can, but like with everything when it comes to taxes and deductions you need to document, document, document.
If you can document that you took the loan and solely used it to for a downpayment on a property then you are allowed to write it off. Easier said then done to be honest.