Is HELOC Interest NotTax Deductble If Used To Purchase Property?

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Is HELOC Interest NotTax Deductble If Used To Purchase Property?

William Coet
Lititz, PA · Member since 2013 · 595 posts · 272 votes
Hello,
When using a HELOC to purchase another property is the interest not tax-deductible?  I read that the interest is only tax deductible when used for improvments to the property used for the HELOC.
We are trying to weigh the benefits of using a mortgage vs. a HELOC

Thanks!
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Justin Phillips
Lender · Phoenix, AZ · Member since 2018 · 440 posts · 256 votes
5y

@William Coet The interest is deductible if it's for a property or property improvements. 
So if you open a HELOC to purchase another property, I would definitely write that off, as it's really mortgage debt. If you use a HELOC to buy a boat...don't write that off.
Disclaimer: I'm not a CPA, just a huge proponent of HELOCs as a REI tool!

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  • Justin Phillips
    Lender · Phoenix, AZ · Member since 2018 · 440 posts · 256 votes
    5y

    @William Coet The interest is deductible if it's for a property or property improvements. 
    So if you open a HELOC to purchase another property, I would definitely write that off, as it's really mortgage debt. If you use a HELOC to buy a boat...don't write that off.
    Disclaimer: I'm not a CPA, just a huge proponent of HELOCs as a REI tool!

    1Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    5y
    Originally posted by @William Coet:
    Hello,
    When using a HELOC to purchase another property is the interest not tax-deductible?  I read that the interest is only tax deductible when used for improvments to the property used for the HELOC.
    We are trying to weigh the benefits of using a mortgage vs. a HELOC

    Thanks!

    HELOC interest is not deductible in your personal returns anymore. But, if you use the proceeds for investment or business purposes, you can deduct the interest at the investment or business activity level. You have to trace the interest.

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    5y

    @William Coet

    You're mixing together 2 concepts. In order for a HELOC interest to be deductible as a personal expense, it has to be used for improving your own personal residence. This rule was introduced by the Trump tax reform of 2018.

    Interest used for buying investment properties has always been deductible against that property, and it does not matter what is the source of that interest: mortgage, HELOC, personal loan, life insurance loan, whatever. Trump tax reform did not change this.

    Make sure to directly apply the HELOC funds to the purchase and not mix it with any other money or purchases, aka interest tracing rules.

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