Yes, that would work, and you would get your full interest
deduction on Sch A.

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"coloradotaxguy" <taxguy[at]nospam.promessage.com> wrote:

- quote -

ok, let's say, rather than showing it as a loan on Sch C to
T/P, would it be simpler to just show it as a owner
contribution that way you don't have to deal with reporting
interest on Sch B? Assuming correct, than T/P should be
making her loan payments from her personal funds
instead....yes?

Or are there other issues to consider here? Currently we
are only talking about a 25k loan from their HELOC.

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It's possible to have two separate loans - a HELOC for you
personally and a loan from you to your business.

It's my interpretation that mortgagae interest on your
principal residence is excluded from the interest sourcing
rules (1.163-8T(m)(3)) and IRS publications indicate the
same. Therefore, home mortgage interest would always go on
Sch A regardless of what the funds were used for.

If you have a separate loan from you to your business, I
believe that would be legitimate but any deduction on Sch C
would be interest income on Sch B. IRS may frown on it if
the interest rate wasn't around the going interest rate at
the time or if you didn't have the loan documented and have
agreed upon terms.

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Ken B. Winger wrote:

- quote -

Answer for both questions. IF all the proceeds of the HELOC
are traced to the business, then noproblem about deducting
said interest on schedule c.

If otherwise, then tracing rules apply, and must prorate the
interest deduction.

the fact that the heloc is secured by a personal residence
does not in itself deny any business deductibility.

ChEAr$$$$,
Harlan Lunsford, EA n LA]
13 Apr 2005
ONLY two days more!

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T/P sets up loan in the name of her new Sch C business
which funds are advanced from their personal HELOC.
As of 12/31/04 - Loan balance is $25k, Personal Mtg Bal. - $300k

Q1: Since funds were deposited into her Sch C business
account, and she is now paying the monthly loan payments out
of her business account, is not the interest deductible only
as Mtg Interest since the loan is secured by their personal
residence?

Q2: If Y to Q1, then are not these payments merely just
personal draws since they relate to their personal HELOC?

Note: HELOC - Home Equity Line of Credit.

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