way111[at]gmail.com wrote:
- quote -

Right, Use the "Nike" formula. (Just DO it.)

ChEAr$,
Harlan Lunsford, EA n LA

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Thanks for the responses.

Harlan Lunsford wrote:

- quote -

How exactly do you do the pro-rating?

Example: I use money from my home equity LOC to provide the
down-payment on a rental property. My HELOC balance exceeds
100K.

I get one 1099 for the HELOC, but now I have to apportion
this between schedule A and schedule E for the rental. How
do I indicate on my taxes that this is what I did? Or do I
just do it and not worry about it?

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Gil Faver wrote:

- quote -

We still follow the tracing rules of course for interest
on that portion of debt.

One client bought property a, then refinanced for more using
proceeds as down payment on property b. In this case I had
to pro rate (pro rate: secret of success in accounting!)
for each property.

But say the investment were to buy stocks/bonds. Then that
portion of interest would go to schedule a and subject to
usual investment income you know.

ChEAr$,
Harlan Lunsford, EA n LA

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"Harlan Lunsford" <hnslunsford[at]bellsouth.net> wrote:
- quote -

what if you use the remainder of the proceeds for other
investment purposes?

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way111[at]gmail.com wrote:

- quote -

No. Only original interest on a property bought for or
converted to rental use is deductible.

- quote -

Thereafter, only the pro rata interest paid on the
percentage of mortgage proceeds actually USED for
renovations, etc for the rental property is deductible.

To illustrate, you paid 200,000$ cash for the rental
property and start to rent it out. Then you decide to add
to the property a sundeck, pool, etc, to make it more
attractive to future renters at a cost of 50,000$. to do
this you borrow 100,000$, thus "cashing out" some of your
equity in the place. Your interest deduction will thus be
50% of the interest paid.

ChEAr$,
Harlan Lunsford, EA n LA

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way111[at]gmail.com posted:

- quote -

Yes.

- quote -

Second home interest would be deductible on Schedule A.

Bill

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Hi experts,

I have a question about mortgage interest deduction on a
rental property.

Suppose I do the following:

- on October 1, I buy a condo as an investment for $200,000,
paying cash
- on October 2, I take out a mortgage on this property for
$200,000

Is the interest paid on this mortgage deductible on my
schedule E?

I know it would be for a second home, it would be considered
acquisition debt as long as I took the mortgage out within
90 days of purchase. I can't find anything that addresses
this situation for a rental property, though.

Thanks!

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