2nd mortgage interest counts toward cost of renting income (real estate, rental)

[dusty108]

Like everyone in the bay area who was lucky enough to buy long ago and didn't do silly thing during the 2007, I have about 800k in equity. I'm planning to buy a new primary resident. Better school for the kids. My question if i take out a second loan on the current home for the down payment on the new home, would the interest be counted toward the cost of running the rental properly?

current mortgage + property tax = 2000
2nd loan payment = 1500
Rental income from the property= 3500
Net income from rental property = $0 == no tax.

Would this be the right assumption?

[dogandcat]

I don't know if you are asking about second mortgage on your property meaning HELOC or refinance with cash out or something else... If HELOC be sure to check with your bank that you can use this money for putting into rental property mortgage because some banks do not allow that (and have a list of restrictions how your can use HELOC money). Consult with CPA knowledgeable with rental property business if you can deduct HELOC as business expenses in your particular situation. After last tax reform they likely changed lots of things related to it, as I heard now you are not allowed to deduct HELOC interes anymore for your primary residency buy can do it for business (I am not a CPA please double and triple check).

But what is 100% for sure is that you can deduct only interest portion of any mortgage you took for your rental property not a full amount. So, in any case it will not be 2000+1500 that you can deduct. It will be less (only interest).

Do not forget that you always can deduct from your rental business profit such things as rental property home depreciation, utilities if pay them by yourself, HOA, property taxes, gardener, fixing broken stuff, etc. So you can make it as $0 profit on a paper yes. Make sure to speak with a good CPA...

[aslowdodge]

Bear in mind that the numbers you provided will affect you doing on the next house you try to get a loan for.

[aslowdodge]

Keep in mind the next house you will need to qualify for the loan. Based on your numbers the lender will probably only give you 75% of that $3500 a month rent. So when they calculate your DTI for your next loan they're going to look at that house as a $900 a month payment plus adding in insurance of say $350 a month and the lender will be looking at you holding that rental as costing you $1250 a month when you go to qualify for your next loan

[NoMoreSnowForMe]

This is a good book on tax deductions for landlords:

https://store.nolo.com/products/ever...d&utm_term=+-+

I read it a long time ago. As I recall, though, the IRS will get suspicious if you operate at a loss for over a certain period of time - something like over 3 years, as I recall. Then, after that, you could raise a red flag and possibly get audited. Double check that, though. As I say, it's been a long time since I read this stuff.

[Peasy973]

OP, you'll probably get better answers in the real estate or investing forum. Maybe a mod can redirect this question to one of your choosing.