Personal HELOC for LLC rental - change to LLC?

3 Replies

Hello, I've found a triplex in Bemidji that's going to work out for mw, but I don't know how the taxes and payments work when using a personal heloc for down payment on an LLC property.

Is there a way to transfer the heloc to the old to streamline the taxes?

If not, do I just take distributions every month to pay that?  Do I pay income tax on that number?

Is there anything I'm missing here, too?

Thanks for your help!

- Eric Nelson

I'm having a hard time following exactly what your question is, but I'll try. When I used my HELOC for my down payment on my 8-plex I just wrote a check from the HELOC and deposited it into my business account. Then I used the business checking to pay the down payment. That way I can have the correct paper trail in my QuickBooks account of what I invested in the business and what the business paid for with it.

Then money you are investing isn't considered income. It would be called "Owner Investment" or something like that. Later, when you pay yourself back, you'd deduct it back out of the same account. 

@Jennifer Rysdam , I heard Tom Wheelwright mentioning in one of the podcasts stating that going forward you will not be able to deduct HELOC interest which was used for investment properties on the personal returns. But nothing precludes as an investor to loan to the LLC and then LLC make the loan payment to deduct interest expenses on the LLC side. So that might be something that @Eric Nelson might be alluding to.  The logistics would still be the same way, Jennifer had mentioned.

Hard to read what exactly you are asking.

If you are the only member of the LLC it is disregarded for tax. It is the same as you owning it personally.

For your accounting you will essentially have 2 loans, the portion borrowed for the HELOC and the new loan. You can pay both out of the monthly cash flow. Payments on these loans will likely be interest and principle payments, interest is deductible, principle is not. So principle payments from the cash flow will be considered income.

No way to combine these without a refi but that likely isn't possible as a bank will not give you a 100% loan to make it more convenient for you. The HELOC is secured by your personal house, the new loan likely the property.