I want take a HELOC on my primary home to pay down the mortgage of a second home that we are renting out.

The Primary home mortgage already is at the $ 1million maximum limit for mortgage interest deduction. So would I be able to deduct interest from the HELOC since it is being used to pay down a mortgage for the rental home?

Zip Code: 02492

If you take out a HELOC to pay down the mortgage on a rental property, one option is to go with the IRS' "tracing rules". This means that you will continue to claim this interest expense against your rental income. The IRS form you will use to report his interest expense is the Schedule E, Rental Income and Expenses.

Here is what the IRS says about Tracing:

"The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. If you use the proceeds of a loan for more than one type of expense, you must make an allocation to determine the interest for each use of the loan's proceeds.

In general, you allocate interest on a loan the same way you allocate the loan proceeds. You allocate loan proceeds by tracing disbursements to specific uses."


Another option is to claim the interest on up to $100k of HELOC interest as an itemized deduction. Each year, you can write off the interest you pay on up to $1 million of mortgage debt and up to $100k of Home Equity Loans. Please note that while the interest you pay on up to $100k of HELOC is deductible when calculating your regular tax, it may not be allowable when calculating the AMT.

I hope this helps you out.

Zip Code: 01801

Well home equity loans are always a last option if one is left with nothing, but before applying one should have thorough knowledge as many things are not being mentioned out by the lenders. These loans are quite beneficial if you have a good credit history as the rate of interest would be quite low.
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