Acceptable Way to apply Home Mortgage interest to investment Prop? (funds, pay)

[StealthRabbit]

Acceptable Way to apply Home Mortgage interest to investment Prop?

Scenerio: - early retiree with LONG background in income / investment props.

Primary house currently paid off. BUT HIGH equity / low cost basis, Too nice to sell in a DOWN market. (gorgeous view).

Investment prop loans roll every 5 yrs and are TOUGH to get in today's market. (7+%)

so... I want to Get a 30 yr mortgage on house, and use it as a BANK to finance my rental / investment properties.

I want to DEDUCT mortgage interest as INCOME / INVESTMENT INTEREST. (= far more bang for the buck... direct offset to income vs, 'diluted deduction' for home mortgage (which will probably go away anyway).

I have been doing this via HELOCs for yrs, as I can show a direct monetary trail that the HELOC covered my investment property.

I cannot figure out how to show a direct trail from underlying mortgage SECURED on personal residence to Income Properties...

Please Help me figure out how to legitimately (in the eyes of IRS) do this.

BTW:... I have several investment props PAID off, so not planning to loose home, but...
LTV will be ~ 30% on Primary, so not planning to loose home.
Will keep a HELOC on extra home value, so I can grab good deals on other properties (strict discipline of restricting RE equity to RE purchases)
I like the idea of 3.5% money for 30 yrs to fund my 'investment RE.'
With NO WAGE income, AND all my annual gifting (contributions) coming from a family foundation, it is unlikely I will be meeting Std Deduction, thus no benefit to claiming 'home interest deduction'

Many thxs

[mathjak107]

the answer is not what you would expect it to be.

you may not be able to write off even 1 penny of interest as an expense or personal mortgage interest.
.
because of definitions of when heloc interest can be written off basically you may not be able to take it at all as wierd as it sounds.


heloc loans are very tightly defined loans as far as the use of that money and when it can be deducted. they are not use anywhere type loans as other type loans are.

they are strictly loans for your own personal use by definition and business or investment property use is not personal use..

heloc interest can be written off only if its a home you are using for yourself. you can not write off investment interest if you dont live in that rental a certain amount of days a year so it falls under personal use..

while you dont have to use a 2nd home at all for it to fall under personal use the fact is once you rent it its no longer considered for your personal use.

basically you may be out of luck if its a pure rental.


here is whats deductable:

"Mortgages taken out after October 13, 1987, to buy, build, or improve your home can be deductable but only if this debt plus any grandfathered debt totals $1 million or less . The limit is $500,000 if you are married filing separately.

Any mortgages taken out after October 13, 1987, other than to buy, build, or improve your home , but only if these mortgages total $100,000 or less , and all mortgages, including any grandfathered debt and home acquisition debt, on the home, total no more than your homes fair market value. The limit is $50,000 if you are married filing separately."

now the issue becomes a minefield when you buy a rental with the money from a heloc on your primary.

"Home mortgage interest is interest you pay on a loan secured by your main home or a second home. The loan may be a mortgage to buy your home, a second mortgage, a home equity loan, or a line of credit.

Your main home is where you live most of the time. It can be a house, cooperative apartment, condominium, mobile home, house trailer, or houseboat that has sleeping, cooking and toilet facilities.

A second home can include any other residence you own, and treat as a second home. You do not have to use the home during the year. However, if you rent it to others, you must also use it as a home during the year for more than the greater of 14 days or 10 percent of the number of days you rent it, for the interest to qualify as home mortgage interest."


the problem is the definitions of a heloc really tightly define it as far as when its deductable. we would like to think a rental expense is a rental expense and deductable but the definitions of a deducable heloc may prevent you from deducting the interest on a pure rental just because of the source of those funds..