HELOC write-off when used for purchase of property

[Jeff Moule]

We used our existing HELOC for a 100% purchase of our latest rental property towards the end of last year. Can we write off the amount of the interest, $1446, as an expense for the rental property? The interest rate on this HELOC is currently 3.76%, but adjustable. For a $100 fee we could lock it into a 30 year for 4.5%, but it would remain on the HELOC. We would hate to lose the interest write-off, so if we can't use the HELOC as an expense we will move it to a traditional stand alone mortgage.

[Natalie Kolodij]

@Jeff Moule

The IRS allows what's called interest tracing. 

The debt is deductible based on it's use, not the asset which secures it. 

So while HELOC debt is no longer deductible- if the debt is used for a business purpose it is deductible against that business/ asset.

So the interest on the HELOC you get to deduct against the rental it was usede to purchase.